- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-QSB
(Mark One)
(X) Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly period ended March 31, 1999
( ) Transition Report Under Section 13 or 15(d) of the Exchange Act
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 Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
215 Main Street
Penn Yan, New York 14527
------------------------
(Address of principal executive offices)
(315) 536-5985
--------------
(Issuer's telephone number)
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. YES _X_ NO ___
<PAGE>
PART 1 - Financial Information
Item 1. Financial Statements
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
<TABLE>
<CAPTION>
Balance Sheets
March 31, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents ..................................... $ 622,669 $ 839,759
Due from affiliates ........................................... 11,484 9,967
Accrued interest receivable ................................... 72,549 64,343
Mortgage loans receivable ..................................... 1,290,290 1,290,290
---------- ----------
Total Assets .................................................. $1,996,992 $2,204,359
========== ==========
Liabilities and Partners' Capital
Liabilities
Due to affiliates ............................................. $ 34,305 $ 34,967
Accrued distributions ......................................... -- 250,000
Deferred revenue .............................................. 400,000 400,000
---------- ----------
Total Liabilities ............................... 434,305 684,967
Partners' capital:
General partner ...................................... 46,390 45,308
Limited partner ...................................... 1,516,297 1,474,084
---------- ----------
Total partners' capital ....................... 1,562,687 1,519,392
---------- ----------
Total Liabilities and Partners' Capital ....................... $1,996,992 $2,204,359
========== ==========
</TABLE>
See accompanying notes
2
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
<TABLE>
<CAPTION>
Statements of Income
(Unaudited)
THREE MONTHS ENDED
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
Revenue
Interest Income ......................... $ 58,155 $ 71,408
-------- --------
Total Revenue ...................... 58,155 71,408
Expenses
Professional fees ....................... 9,717 5,033
Fees to affiliates:
Management ............................. 2,805 4,927
Mortgage Servicing ..................... 282 282
Other ................................... 2,056 819
-------- --------
14,860 11,061
-------- --------
Net Income ......................... $ 43,295 $ 60,347
======== ========
Net income allocated to general partners ......... $ 1,082 $ 1,509
Net income allocated to limited partners ......... 42,213 58,838
-------- --------
$ 43,295 $ 60,347
======== ========
Basic earnings per limited
partner unit .................................... $ .08 $ .12
======== ========
Weighted average limited ......................... 522,116 522,116
partner units outstanding ======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
<TABLE>
<CAPTION>
Statements of Partners' Capital
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
1999 1998
---------------------------------------- -------------------------------------------
TOTAL TOTAL
GENERAL LIMITED PARTNERS' GENERAL LIMITED PARTNERS'
PARTNERS PARTNERS CAPITAL PARTNERS PARTNERS CAPITAL
----------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period ......... $ 45,308 $ 1,474,084 $ 1,519,392 $ 39,123 $ 2,480,837 $ 2,519,960
Net income ............................. 1,082 42,213 43,295 1,509 58,838 60,347
Cash distributions to partners ......... -- -- -- -- (103,112) (103,112)
----------- ----------- ----------- ----------- ----------- -----------
Balance at end of period ............... $ 46,390 $ 1,516,297 $ 1,562,687 $ 40,632 $ 2,436,563 $ 2,477,195
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes
4
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
<TABLE>
<CAPTION>
Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................... $ 43,295 $ 60,347
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease (increase) in due from affiliates .. (1,516) (1,897)
Decrease (increase) in interest receivable .. (8,206) (9,739)
Increase (decrease) in due to affiliates .... (663) 6,866
----------- -----------
Net cash provided by operating activities 32,910 55,577
----------- -----------
Cash flows from investing activities:
Loan to affiliates ................................... -- (53,000)
----------- -----------
Net cash used in investing activities .... -- (53,000)
----------- -----------
Cash flows from financing activities:
Distributions to limited partners .................... (250,000) (103,112)
----------- -----------
Net cash used in financing activities ..... (250,000) (103,112)
----------- -----------
Net increase (decrease) in cash and cash equivalents: ......... (217,090) (100,535)
Cash and cash equivalents, beginning of period ................ 839,759 1,647,623
----------- -----------
Cash and cash equivalents, end of period ...................... $ 622,669 $ 1,547,088
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
COMMON GOAL HEALTH CARE
PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
Notes to Financial Statements
(Unaudited)
March 31, 1999
(1) Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
Common Goal Health Care Pension and Income Fund L.P. 11 (Partnership)
was formed on May 9, 1989, to invest in and make mortgage loans to
third parties and affiliates involved in health care. On July 2, 1990,
the Partnership commenced operations, having previously sold more than
the specified minimum of 117,650 units ($1,176,500). The Partnership's
offering terminated January 11, 1992 with the Partnership having sold
522,116 Units ($5,221,160).
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's
agreement of limited partnership ("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 is
required to pay a quarterly management fee to the managing general
partner equal to 1% per annum of adjusted contributions, as defined. A
mortgage servicing fee equal to .25% per annum of the Partnership's
outstanding mortgage loan receivable principal amount also is to be
paid to Common Goal Mortgage Company, 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.
The Partnership classifies all short-term investments with maturities
at date of purchase of three months or less as cash equivalents.
Mortgage loans that have virtually the same risk and potential rewards
as joint ventures are accounted for and classified as investments in
operating properties. 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 distribution
of cash to the Partnership; otherwise, such cash is recorded as a
reduction of the related investments.
6
<PAGE>
An allowance for loan losses will be 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.
No provision for income taxes has been recorded as the liability of
such taxes is that of the partners rather than the Partnership.
Earnings per limited partner unit is computed based on the weighted
average limited partner units outstanding for the period.
The accompanying unaudited financial statements as of and for the three
months ended March 31, 1999 and 1998 are the representation of
management and reflect all adjustments which are, in the opinion of
management, necessary to a fair presentation of the financial position
and results of operations of the Partnership. All such adjustments are
normal and recurring. These results are not necessarily indicative of
the results for the entire year.
(2) Mortgage Loans Receivable
-------------------------
Unless otherwise specified, all references to outstanding principal
balances should refer to the carrying value for tax purposes.
The Joint Venture Loan. The amount of $50,590 represents the amount of
outstanding principal remaining in the Partnership's participation in a
second mortgage loan made by an affiliated joint venture (with a total
outstanding principal balance of $1,618,254). The loan, which was
originally secured by two nursing home facilities in Pennsylvania,
bears interest at a rate of 13.7% per annum and provides for
participation interest based on the increase in the fair value of the
facilities to be paid at maturity 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. On November
3, 1993, the borrower, Life Care, restructured the Joint Venture Loan
and paid down the balance. The Partnership received $52,314 allocated
to its share. Of that amount, $45,010 was applied to principal while
the remainder was applied to a prepayment penalty, interest and a
refinancing fee. The entire remaining principal balance is due at the
maturity date of January 1, 2000.
St. Catherine's Loans. As a result of the refinancing of the senior
debt 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") which totaled $840,500 in the
aggregation. 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")
7
<PAGE>
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 ratios are
not maintained, the interest shall accrue until the debt 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
subsequently 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 and the participation income and
interest earned on the CPOs will be recognized only when received.
On March 13, 1997 the Managing General Partner approved a loan 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 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 loan will bear interest at
the rate of 13% per annum and will mature August 31, 2000. The
Partnership funded this $425,000 loan on April 10, 1997. On November
3, 1997 the Managing General Partner approved an additional loan of
$425,000 to St. Catherine's Care Centers. As of March 31, 1999 the
loan balance was $839,700.
8
<PAGE>
The principal balances outstanding for these loans as of March 31, 1999
were as follows:
<TABLE>
<CAPTION>
Second Mortgage Loan Third Mortgage Loan
-------------------- -------------------
<S> <C> <C>
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
-------- --------
$450,590 $839,700
======== ========
</TABLE>
(3) Subsequent Events
-----------------
On April 13, 1999, the Partnership declared and paid a distribution of
$250,000 ($.48 per unit) to Limited Partner unitholders of record at
March 15, 1999.
9
<PAGE>
Item 2. Managements Discussion and Analysis or Plan of Operations.
------------------------------------------------------------------
General
-------
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, and commenced operations on July 2, 1990
(having sold the Minimum Number of Units as of that date). After having
raised $5,221,160 by selling Units to 483 investors, the Partnership
terminated the public offering on January 11, 1992.
The Partnership's 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.
Liquidity and Capital Resources
-------------------------------
Partnership assets decreased from $2,204,359 at December 31, 1998 to
$1,996,992 at March 31, 1999. The decrease of $207,367 resulted
primarily from cash distributions of $250,000 on January 2, to the
Limited Partners that was partially offset by net earnings for the
period. As of March 31, 1999 the Partnership's loan portfolio consisted
of six mortgage loans, the aggregate outstanding principal balance of
which was $1,290,290.
The Partnership has structured its Mortgage Loans to provide for
payment of quarterly distributions from investment income. The interest
derived from the Mortgage Loans, repayments of Mortgage Loans and
interest earned on short-term investments contribute to the
Partnership's liquidity. These funds are used to make cash
distributions to 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 Partnership intends to maintain working capital reserves equal to
approximately 2% of gross proceeds of the offering (approximately
$104,423 at December 31, 1998 and at March 31, 1999), an amount which
is anticipated to be sufficient to satisfy liquidity requirements. The
Managing General Partner continues monitoring of the level of working
capital reserves.
10
<PAGE>
Results of Operations
---------------------
The Partnership commenced operations July 2, 1990, and funded its first
Mortgage Loan in November 1990. As of June 30, 1991, the Partnership
had completed its portfolio of Mortgage Loans. The interest earned on
these investments has stabilized on a tax accounting basis.
Accordingly, the General Partners expect the Partnership's earnings to
remain relatively constant.
During the quarters ended March 31, 1999 and 1998, the Partnership had
net earnings of $43,295 and $60,347, based on total revenue of $58,155
and $71,408 and total expenses of $14,860 and $11,061. For the three
months ended March 31, 1999 and 1998, the net earnings per limited
partner unit was $.08 and $.12, respectively. The second mortgage loans
were current as to regular interest as of March 31, 1999. The third
mortgage loans were not current as to regular interest at March 31,
1999. The Partnership is working with the borrowers to bring the third
mortgage loans current. As of March 31, 1999 the Partnership was owed
$45,603 of interest. The borrowers are paying interest at the penalty
rate of 3% per annum.
The Partnership's success and the resultant rate of return to Limited
Partners will be dependent upon, among other things, the ability of the
Managing General Partner to identify suitable opportunities for the
Partnership to reinvest its assets and the ability of the borrowers to
pay the current interest, additional interest and principal of the
Mortgage Loans.
The General Partners expect to reinvest some of the excess reserves
resulting from the refinancing of the operating properties in loans to
new operating properties.
Year 2000 Compliance
Information provided within this note 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, telecommunication and property operating
systems.
11
<PAGE>
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. 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-QSB 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.
12
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 5 are omitted because of the absence of conditions
under which they are required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K
Reports on Form 8-K, 8-K/A and 8-K/A-2 were filed on March 24,
1999, April 2, 1999 and April 12, 1999, respectively, to
disclose a change in the Registrant's accountants.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant 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
-------------------------------------------------------
(Registrant)
By: Common Goal Capital Group, Inc. II,
Managing General Partner
DATED: May 19, 1999 /s/ Albert E. Jenkins, III
----------------------------------
Albert E. Jenkins, III
President, Chief Executive Officer
and Acting Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 622,669
<SECURITIES> 0
<RECEIVABLES> 1,374,323
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,996,992
<CURRENT-LIABILITIES> 434,305
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,562,687
<TOTAL-LIABILITY-AND-EQUITY> 1,996,992
<SALES> 0
<TOTAL-REVENUES> 58,155
<CGS> 0
<TOTAL-COSTS> 14,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 43,295
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,295
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
