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, 1999
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 Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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, 1999 were $242,630.
The aggregate original sales price of the units of Limited Partnership Interest
held by non-affiliates of the Registrant as of March 31, 2000 was $5,221,160
(490 investors). As of March 31, 2000, 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 January 12, 1990, 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 in its Public Offering.
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) 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 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. (See "Existing Mortgage
Loans - Joint Venture Loan," below.) 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 "Lessee"). The Lessee continues to lease the facilities. The Lessee
did not assume the St. Catherine's Loans.
The Partnership's objectives in making its Mortgage Loans 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"). 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.
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 treats its Mortgage Loans as mortgage loans for federal
income tax purposes. See "Item 7. Financial Statements." The Partnership is not
subject to federal income taxes as the liability for such taxes is that of the
partners rather than the Partnership. For further information concerning the
Partnership's present investments in Mortgage Loans, see "Existing Mortgage
Loans" 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. The Partnership does not intend to make additional
Mortgage Loans after the St. Catherine's Loans mature on April 30, 2000 (Second
Mortgage Loans) and August 31, 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.
The Partnership expects to commence an orderly liquidation when all of its
outstanding Mortgage Loans have been repaid. Such liquidation is expected to
commence in the first quarter of 2001. Funds held pending distribution, 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, 1999
were as follows:
Second Mortgage Third Mortgage
Loans Loans
---------------- ---------------
Joint Venture Loan (1) $50,590 $ --
St. Catherine's of Tiffin 51,500 $51,281
St. Catherine's of Bloomville 36,000 173,425
St. Catherine's of Fostoria 102,000 113,550
St. Catherine's of Findlay 142,500 126,379
St. Catherine's of
Washington Court House 68,000 385,365
-------- --------
Subtotal $450,590 $850,000
-------- --------
Total $1,300,590
==========
(1) The loan principal was paid in full on February 14, 2000 and final payment
of Additional Interest is expected to be made on May 5, 2000. Pending such
final payment, the Joint Venture Loan will bear interest at a rate of
10.5% per annum.
In November 1998, the St. Catherine's facilities were leased
to the Lessee. The Lessee did not assume the St. Catherine's Loans. The Lessee
is current in its payments of the leases.
Joint Venture Loan. The Partnership also made a mortgage loan (the "Joint
Venture Loan") in August 1990 through a joint venture (the "Joint Venture") with
Common Goal 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.
The Joint Venture, CGI-CGII Honeybrook General Partnership,
a Maryland general partnership (the "Lender"), entered into an Amended and
Restated Loan Agreement (the "Loan Agreement") with Honey Brook Medical
Investors, Ltd. ("Medical"), Honey Brook Retirement Investors, Ltd.
("Retirement"), Forest L. Preston ("Preston"), Fred L. Lester ("Lester") and
Charles E. Jabaley ("Jabaley") (collectively, the "Borrowers"). Medical holds
title to property referred to as Hickory House Nursing Home located in Honey
Brook, Pennsylvania ("Hickory House"). Retirement holds title to the property
referred to as Heatherwood Retirement Center also located in Honey Brook,
Pennsylvania ("Heatherwood").
The Loan Agreement provided for a loan in the principal amount of
$3,430,113.95. The Partnership subsequently funded $95,600 in 1991, which
decreased the Common Goal I portion of the Joint Venture Loan to $3,334,514. The
loan was originally collateralized by an absolute assignment of all of the
general and limited partnership interests in Medical and Retirement, a Junior
Mortgage on Hickory House, and the guaranty of Preston, Lester, Jabaley and Life
Care. The Loan Agreement provided for Basic Interest of 13.7% per annum payable
monthly in advance at 12% per annum with 1.7% deferred and paid annually and
Additional Interest consisting of two components (participation in gross
revenues and participation in appreciation).
On December 3, 1993, Lender and Borrowers executed a First Amendment to
the Amended and Restated Loan Agreement (the "First Amendment") pursuant to
which the description of the Collateral was amended to eliminate the Mortgage
and the calculation of Additional Interest was amended to provide that the fair
market value of the Hickory House portion of the Collateral was deemed to be
$6,400,000. Thus, while the Mortgage on Hickory House was released and a fair
market value was attributed to that property (for purpose of subsequent
calculation Additional Interest), Lender continued to be entitled to participate
in gross revenues and appreciation in Heatherwood and Hickory House. At December
31, 1999 and 1998, the Joint Venture Loan had an outstanding balance of
$1,618,254, with Common Goal I's portion being approximately $1,567,664 and the
Partnership's portion being approximately $50,590.
In January, 2000, Borrower requested an extension of the maturity date to
March 31, 2000. Lender agreed, provided that Borrowers paid down the principal
balance of the loan by $500,000.00, which amount was paid in February 2000. This
amount was used to retire the $50,590 remaining of the Partnership's principal
with the balance reducing Common Goal I's principal. On or about April 11, 2000,
the Lender and the Borrowers agreed that $235,000 of Additional Interest was due
of which the Partnership's share was $7,355, of which $200,000 (including the
$7,355 due the Partnership). will be paid on May 5, 2000. The Joint Venture Loan
will bear interest at a rate of 10.5% per annum commencing April 1, 2000. The
remaining principal and the balance of Additional Interest due to Common Goal I
are expected to be paid on or about January 1, 2001.
At December 31, 1999, 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
$849,500. 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, 1999 the loan balance was $850,000. 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, 2000, the St. Catherine's borrowers were approximately $41,924
behind in interest payments.
The following charts provide certain summary information with respect to
the Partnership's Mortgage Loans.
Common Goal II Second Mortgage Loans
<TABLE>
St.
Joint St. St. St. St. Catherine's of
Venture Catherine's Catherine's Catherine's Catherine's 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 Dec. 31,
1999 $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, April 30, April 30, April 30, April 30, April 30,
2000(1) 2000(5) 2000(5) 2000(5) 2000(5) 2000(5)
Property Type 100-bed skilled 44-bed nursing 30-bed nursing 102-bed nursing 40-bed and 60 50-bed nursing
/Location care and home in home in home in bed nursing home in
of Property intermediate care Tiffin, OH Bloomville, OH Fostoria, OH home in Washington
Securing facility in Court House, OH
Loan 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>
(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"). The balance of the Joint Venture Loan attributable to the
Partnership as of December 31, 1999 was $50,590, which amount was repaid
in full on February 14, 2000. Additional Interest on the Joint Venture
Loan attributable to the Partnership will be paid on May 5, 2000, and the
Partnership thereafter will release its claim on the Borrowers'
collateral.
(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 required 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 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. Effective as of April 1, 2000, the interest rate
will be 10.5% per annum.
(4) Interest on the St. Catherine's Mortgage Loans is at a rate of 11.00% per
annum, calculated on a 365-day year for the actual number of days lapsed,
and paid quarterly.
(5) The Partnership and the Borrowers are discussing refinancing of these
loans, but have not reached and agreement.
Common Goal II Third Mortgage Loans
St.
Catherine's
St. St. St. St. of
Catherine's Catherine's Catherine's Catherine's Washington
of of of of Court
Tiffin Bloomville Fostoria Findlay House
----------- ------------ ------------ ----------- ------------
Date of
Loan 1997 1997 1997 1997 1997
Type of Third Third Third Third Third
Loan 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
Dec. 31,
1999 $51,281 $173,425 $113,550 $126,379 $385,365
Interest 13.00%(1) 13.00%(1) 13.00%(1) 13.00%(1) 13.00%(1)
Rate
Maturity August 2000 August 2000 August 2000 August 2000 August 2000
Property 44-bed 30-bed 102-bed 40-bed 50-bed
Type nursing nursing nursing and nursing
/Location home in home in home in 60-bed home in
of Tiffin, Bloomville, Fostoria, nursing Washington
Property OH OH OH home in Court
Securing Findlay, House, OH
Loan OH
Origination
Fee Paid
to an
Affiliate
(Paid by
Borrower) None None None None None
Relationship
to
Partnership Affiliate Affiliate Affiliate Affiliate Affiliate
- ----------------------
(1) Interest on the 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 has been making distributions to the Limited Partners in equal to a
7.25% return on Adjusted Contributions since 1996.
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 a 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.
<PAGE>
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, 1999.
Item 3. Legal Proceedings.
The Partnership is not a party to any material 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 1999.
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, 2000, 522,116 Units were outstanding, and were held by 490
holders of record.
The Partnership made distributions to Limited Partners of $367,513 ($4,169
as a distribution of principal) or $.70 per Unit during 1999, and $1,205,991
($991,377 as a distribution of principal) or $2.31 per Unit during 1998.
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, 1999, 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, 1999, the Partnership had six Mortgage Loans
outstanding directly or through a joint venture, including five Mortgage Loans
to various 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 $423,207 at December 31, 1999), an
amount which is anticipated to be sufficient to satisfy liquidity requirements.
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 of 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 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.
The Partnership's balance of cash and cash equivalents at December 31,
1999 and December 31, 1998 was $423,207 and $839,759, respectively, which
consisted of operating cash and working capital reserves. The decrease in cash
and cash equivalents from December 31, 1998 to December 31, 1999 of $416,552
resulted from net income of $171,670, distributions to limited partners of
$579,527, and additional funding to St. Catherine's Care Centers of $17,655.
Dividend distributions noted as a return of capital represent those
distributions which are in excess of current year earnings. Part of the expenses
for 1995 included $116,094 paid out in mortgage placement fees authorized by the
Partnership's Partnership Agreement. The Agreement authorized payment of a 3%
mortgage placement fee to Common Goal Mortgage Company ("CGMC"), an affiliate of
the General Partners, in connection with the original placement of the
Partnership mortgage loans with the various St. Catherine's entities. CGMC
elected to defer the decision of whether to take such fees until repayment of
such loans. An aggregate of $4,248,841 of loans were funded, with their
principal amounts fully repaid in April 1995, for which CGMC was entitled to a
mortgage placement fee of up to $127,468. As consideration for immediate cash
payment, CGMC agreed to a fee of $116,094 by the Partnership at the time of such
refinancing, representing payment in full of its deferred mortgage placement
fee. The decrease in Total Assets is a direct result of net cash distributed as
a dividend to the limited partners.
During the years ended December 31, 1999 and 1998, the Partnership
reported net income of $171,670 and $219,235, based on total revenues of
$242,630 and $283,316 and total expenses of $70,960 and $64,081, respectively.
The Partnership's distributions to Limited Partners were $.70 per Unit in 1999
and $2.31 per Unit in 1998. The 1999 and 1998 distributions to Limited Partners
included a return of capital of $.01 and $1.90 per Unit, respectively. All
interest received on the Mortgage Loans is currently being recognized as
interest income.
Most of the cash received as interest payments in previous years was not
recognized as interest income, rather it was recorded as a reduction of the
related investments. Therefore, when the Partnership received the pay offs on
the properties, the reduction of the related investment balances, caused a
greater amount of the proceeds to be recorded as income in 1995.
Expenses increased in 1999 by $6,879 primarily because of an increase of
$14,876 in professional fees and a decrease of $6,860 in management fees.
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 1999 and 1998, the Managing General Partner was
reimbursed by the Partnership for $58,446 and $32,298, 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
Impact of Year 2000
In prior periods, the Partnership discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999 the Partnership completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Partnership experienced no significant disruptions
in mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000 date
change. The Partnership is not aware of any material problems resulting from
Year 2000 issues, either with its internal systems, or the products and services
of third parties. The Partnership had no expense in 1999 and does not anticipate
any additional expense resulting from Year 2000 issues. The Partnership will
continue to monitor its mission critical computer applications and those of its
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
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.
Table of Contents
Page
Independent Auditors' Report......................................F - 1
Financial Statements
Balance Sheet................................................F - 2
Statements of Income.........................................F - 3
Statement 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, 1999
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, 1999 and the results of its
operations and 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.
Ehrhardt Keefe Steiner & Hottman PC
February 23, 2000
Denver, Colorado
F-1
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
Balance Sheet
December 31, 1999
Assets
Cash and cash equivalents $423,207
Accrued interest receivable and other 65,126
Due from affiliates 16,038
Mortgage loans receivable (Note 2) 1,307,945
---------
Total assets $1,812,316
==========
Liabilities and Partners' Capital
Due to affiliates $ 50,781
Accrued distributions 37,986
Deferred revenue (Note 2) 400,000
--------
Total liabilities 488,767
Partners' capital (Note 4)
General partners 49,600
Limited partners 1,273,949
---------
Total partners' capital 1,323,549
---------
$1,812,316
==========
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,
-----------------------
1999 1998
----------- ----------
Revenue
Interest income $242,630 $269,756
Other income - 13,560
-------- --------
242,630 283,316
Expenses
Professional fees 38,095 23,219
Fees to affiliates
Management 8,951 15,811
Mortgage servicing 1,126 1,126
Other 22,788 23,925
-------- --------
70,960 64,081
-------- --------
Net income $171,670 $219,235
======== ========
Net income allocated to general partners $ 4,292 $ 5,481
Net income allocated to limited partners 167,378 213,754
-------- --------
$171,670 $219,235
======== ========
Basic earnings per limited partner unit $ .32 $ .41
======== =========
Weighted average limited partner units outstanding 522,116 522,116
======== ========
See notes to 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, 1999 and 1998
Total
General Limited Partners'
Partners Partners Capital
-------- ---------- ----------
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
Net income 4,292 167,378 171,670
Principal distributions to limited
partners ($.01 per unit) - (4,169) (4,169)
Distributions to limited partners
($.69 per unit) - (363,344) (363,344)
-------- ---------- ----------
Balance at December 31, 1999 $ 49,600 $1,273,949 $1,323,549
======== ========== ==========
See notes to financial statements
F-4
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
Statements of Cash Flows
For the Years Ended
December 31,
-------------------------
1999 1998
----------- -----------
Cash flows from operating activities
Net income $171,670 $219,235
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities -
Accrued interest receivable (783) (2,191)
Due to/from affiliates 9,743 15,183
-------- --------
8,960 12,992
-------- --------
Net cash provided by operating activities 180,630 232,227
-------- --------
Cash flows from investing activities
Loans to affiliates (17,655) (85,000)
-------- --------
Net cash used in investing activities (17,655) (85,000)
-------- --------
Cash flows from financing activities
Distributions to partners (579,527) (955,091)
-------- --------
Net cash used in financing activities (579,527) (955,091)
-------- --------
Net decrease in cash and cash equivalents (416,552) (807,864)
Cash and cash equivalents, beginning of year 839,759 1,647,623
-------- ---------
Cash and cash equivalents, end of year $423,207 $ 839,759
======== =========
Supplemental disclosure of cash flow information: Interest paid was $0 for 1999
and 1998.
Income taxes paid was $0 for 1999 and 1998.
Supplemental disclosure of non-cash financing activities:
The Partnership accrued distributions of $37,986 and $250,000 during
the years ended December 31, 1999 and 1998, respectively.
See notes to financial statements
F-5
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
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, 1999, there were 490 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
F-6
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
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 1999 and 1998, the Managing General Partner
charged the Partnership for $58,446 and $32,298 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.
F-7
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
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%.
F-8
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
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.
F-9
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
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's 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 deemed
necessary for losses at December 31, 1999.
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 1998 or 1999.
F-10
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
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,
1999, cash equivalents consisted of money market accounts.
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, 1999, the Company's cash balances were in excess of such limits by
approximately $323,000.
The accrued interest receivable and mortgage loan receivable balances at
December 31, 1999 are from the various mortgage described in Note 2.
Reclassifications
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
Note 2 - Mortgage Loans Receivable
On March 7, 1997, the Partnership entered into a loan agreement with the St.
Catherine 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, 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, 1999 to the affiliated St. Catherine
entities totaled $850,000 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.
F-11
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
Note 2 - Mortgage Loans Receivable (continued)
A summary of mortgage loan receivable activity for the year ended December 31,
1999 is as follows:
Balance at December 31, 1998 $1,290,290
Mortgage loan advances (renovation loan) 10,300
Participation interest rolled into principal 7,355
----------
Balance at December 31, 1999 $1,307,945
==========
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,
Bloomville, 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).
F-12
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
Note 2 - Mortgage Loans Receivable (continued)
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 $48,455 and $47,904 for the years
ended December 31, 1999 and 1998, respectively.
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, 1999. 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.
At December 31, 1999, 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.
Subsequent to year end, the $50,590 outstanding balance was repaid. In addition
to the principal amount, the Partnership received an additional $7,355
representing its share of participation interest on the joint venture loan. The
partnership has recorded the $7,355 as additional interest income in the
accompanying financial statements.
The partnership also intends to renegotiate all other remaining loan balances
with remaining terms which will extend the maturity dates to be consistent with
the first mortgage loans which are currently being refinanced.
F-13
<PAGE>
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
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, 1999 $1,307,945 $1,322,341
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, 1999 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
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.
On December 15, 1999, the Partnership declared a distribution of $363,344 ($.69
per unit) to Limited Partner unitholders. The Partnership also declared
distributions during 1999 of $4,169 ($.01 per unit) as a return of principal to
the Limited Partners. The Partnership has accrued approximately $38,000 of these
distributions at December 31, 1999 which were subsequently paid in January 2000.
F-14
<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 the 1998 fiscal year. Reports on From
8-K, 8-K/A and Form 8-K/A-2 reporting the event were filed on March 24, 1999,
April 2, 1999 and April 9, 1999 respectively. There were no reporting
disagreements on financial statement disclosures or accounting matters covering
the prior two fiscal years up through March 20, 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, 2000:
Name Age Position
---- --- --------
Albert E. Jenkins III 52 Chairman of the Board,
Chief Executive Officer,
President and Director
Richard R. Wood 76 Secretary and Treasurer
William E. Jasper 83 Director
Linda R. Robison 52 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.
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. 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, 1999.
Capacities in
Which Compensation
Name of Affiliate was Received Remuneration
- ----------------- ------------------ ------------
Managing General Partner Management fee $8,951
Common Goal Mortgage Mortgage loan
Company servicing fees $1,126
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, 2000.
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, 1999.
(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.
<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 14, 2000
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 14, 2000
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 14, 2000
William E. Jasper, Jr. General Partner
/s/ Richard R. Wood Director of Managing April 14, 2000
Richard R. Wood General Partner
/s/ Linda R. Robison Director of Managing April 14, 2000
Linda R. Robison General Partner
(A Majority of the Board of Directors of the Managing General Partner)
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 423,207
<SECURITIES> 0
<RECEIVABLES> 1,389,109
<ALLOWANCES> 0
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<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,812,316
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0
0
<COMMON> 0
<OTHER-SE> 1,323,548
<TOTAL-LIABILITY-AND-EQUITY> 1,812,316
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<CGS> 0
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