UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-15816 Krupp Cash Plus-II Limited Partnership Massachusetts 04-2915326 (State or other jurisdiction of (IRS employer incorporation or organization) identification no.) 470 Atlantic Avenue, Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) (617) 423-2233 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The total number of pages in this document is 13. PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS This form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. KRUPP CASH PLUS-II LIMITED PARTNERSHIP BALANCE SHEETS ASSETS March 31, December 31, 1998 1997 Real estate assets: Multi-family apartment complex (Note 3) $ - $ 5,597,104 Retail centers (Notes 3 and 4) - 29,622,892 Mortgage-backed securities ("MBS"), net of accumulated amortization (Note 6) 6,165,999 6,478,988 Total real estate assets 6,165,999 41,698,984 Cash and cash equivalents (Note 2) 43,422,810 5,325,971 Other assets 379,922 629,755 Total assets $ 49,968,731$47,654,710 LIABILITIES AND PARTNERS' EQUITY Liabilities: Accrued expenses and other liabilities (Note 7)$212,526$ 660,976 Due to affiliates (Note 9) 123,422 - Total liabilities 335,948 660,976 Partners' equity (deficit) (Note 8): Unitholders (7,499,718 Units outstanding) 49,939,497 47,281,562 Corporate Limited Partner (100 Units outstanding) 871 835 General Partners (670,128) (650,556) Unrealized holding gains on MBS (Note 6) 362,543 361,893 Total Partners' equity 49,632,783 46,993,734 Total liabilities and Partners' equity $ 49,968,731$47,654,710 The accompanying notes are an integral part of the financial statements. KRUPP CASH PLUS-II LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 1998 1997 Revenue: Rental $ 458,258 $1,738,839 Interest income - MBS (Note 6) 129,879 154,336 Interest income - other 426,652 109,360 Total revenue 1,014,789 2,002,535 Expenses: Operating (Note 9) 256,655 220,795 Maintenance 46,741 99,534 General and administrative (Note 9) 131,340 177,319 Real estate taxes 60,367 217,649 Management fees (Note 9) 34,315 91,061 Depreciation 44,095 532,546 Total expenses 573,513 1,338,904 Income from operations before gain on sale of properties 441,276 663,631 Partnership's share of Joint Venture net loss (Note 5) - (538,037) Income before gain on sale of properties 441,276 125,594 Gain on sale of properties (Note 3) 3,725,484 - Net income $4,166,760 $ 125,594 Allocation of net income (Note 8): Unitholders (7,499,718 Units outstanding): Income before gain on sale of properties$ 432,445 $ 123,080 Gain on sale of properties 3,725,434 - Net income $4,157,879 $ 123,080 Per Unit of Depositary Receipt: Income before gain on sale of properties$ .06 $ .02 Gain on sale of properties .50 - Net income $ .56 $ .02 Corporate Limited Partner (100 Units outstanding): Income before gain on sale of properties$ 6 $ 2 Gain on sale of properties 50 - Net income $ 56 $ 2 General Partners: Income before gain on sale of properties$ 8,825 $ 2,512 Gain on sale of properties - - Net income $ 8,825 $ 2,512 The accompanying notes are an integral part of the financial statements. KRUPP CASH PLUS-II LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1998 1997 Operating activities: Net income $ 4,166,760$ 125,594 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 44,095 532,546 Amortization of MBS discount, net 301 (539) Gain on sale of properties (3,725,484) - Partnership's share of Joint Venture net loss - 538,037 Changes in assets and liabilities: Decrease in other assets 239,929 31,013 Increase (decrease) in due to affiliates 123,422 (154,451) Decrease in accrued expenses and other liabilities (449,478) (50,106) Net cash provided by operating activities 399,545 1,022,094 Investing activities: Additions to fixed assets (64,710) (53,137) Principal collections on MBS 313,338 295,673 Capital contribution to Joint Venture - (2,150,000) Increase in accrued expenses and other liabilities related to fixed asset additions 1,028 1,184 Distributions received from Joint Venture in excess of its earnings - 199,000 Proceeds from sale of properties, net 38,975,999 - Net cash provided by (used in) investing activities 39,225,655 (1,707,280) Financing activity: Distributions (1,528,361) (1,518,246) Net increase (decrease) in cash and cash equivalents 38,096,839 (2,203,432) Cash and cash equivalents, beginning of period 5,325,971 8,953,003 Cash and cash equivalents, end of period $43,422,810$ 6,749,571 Supplemental schedule of noncash investing and financing activities: Unrealized holding gains on MBS (Note 6) $ 650$ - The accompanying notes are an integral part of the financial statements. KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (1)Accounting Policies Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this report on Form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. In the opinion of the General Partners of Krupp Cash Plus-II Limited Partnership (the "Partnership") the disclosures contained in this report are adequate to make the information presented not misleading. See Notes to Financial Statements included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1997 for additional information relevant to significant accounting policies followed by the Partnership. In the opinion of the General Partners of the Partnership, the accompanying unaudited financial statements reflect all adjustments necessary to present fairly the Partnership's financial position as of March 31, 1998 and its results of operations and cash flows for the three months ended March 31, 1998 and 1997. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results which may be expected for the full year. See Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. (2)Cash and Cash Equivalents Cash and cash equivalents consisted of the following: March 31, December 31, 1998 1997 Cash and money market accounts $ 1,244,696 $ 1,725,998 Commercial paper 42,178,114 3,599,973 $ 43,422,810 $ 5,325,971 (3)Sale of Properties On January 30, 1998, the Partnership sold its remaining properties to unaffiliated third parties. The Partnership's properties were included in a package with nine other properties owned by affiliates of the General Partners. The total selling price of the fourteen properties was $138,000,000, of which the Partnership received $39,822,700, less its share of closing costs of $846,701. For financial reporting purposes, the Partnership realized a gain of $3,725,484 on the sale. The gain was calculated as the difference between the properties' selling prices less net book value of the properties and closing costs. (4)Provision for Losses on Real Estate In accordance with Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of", the Partnership recorded valuation provisions for losses on its real estate assets of $5,375,772 at December 31, 1997. These provisions represented the difference between carrying values and selling prices less estimated costs to sell as a result of the sale of the Partnership's properties on January 30, 1998 (see Note 3). Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (5)Investment in Joint Venture The Partnership and an affiliate of the Partnership (collectively referred to herein as the "Joint Venture Partners") each had a 50% interest in the Joint Venture. The express purpose of entering into the Joint Venture was to acquire and operate Brookwood Village Mall and Convenience Center ("Brookwood Village"). Brookwood Village, a shopping center containing 474,083 net leasable square feet and located in Birmingham, Alabama, was sold on May 13, 1997 to an unaffiliated third party. Under the purchase and sale agreement entered into by the Partnership, its affiliates and the seller, the seller retained a lien on the premises related to the future sale of the property or development of unimproved land at Brookwood Village. The lien entitled the seller to receive $5,000,000 of proceeds from the sale of Brookwood Village and potentially additional amounts related to the expansion and development. On February 28, 1997, Brookwood Village paid the discounted amount of $4,300,000 to settle a lawsuit filed by the previous owner, thereby releasing the lien. The Partnership and its Joint Venture Partner each made capital contributions of $2,150,000 to fund the settlement payment. Based upon the Joint Venture Partners' assessment of the current and future market conditions, the capital improvements necessary to remain competitive in its market, its capital resources and the differing strategies of the Joint Venture Partners, the Joint Venture Partners determined that it was in their best interests, and that of their respective investors, to sell Brookwood Village. On May 13, 1997, the Joint Venture Partners exchanged Brookwood Village with an unaffiliated third party for net consideration totaling $32,422,220, less prorations and closing costs of $863,164, which included two multi-family properties and cash. Each Joint Venture Partner was allocated 50% of the net consideration received. The Partnership received cash totaling $15,779,528, net of the Partnership's share of prorations and closing costs. For financial reporting purposes, the Joint Venture realized a loss of $721,760 on the exchange. The loss was calculated as the difference between net consideration received less net book value of the property and closing costs. As a result of the sale of Brookwood Village, the Joint Venture Partners liquidated the Joint Venture and distributed its remaining assets in the fourth quarter of 1997. In accordance with the Joint Venture Agreement, each Joint Venture Partner received 50% of the remaining net assets of $793,804. Subsequent to the final distribution, the Joint Venture was dissolved. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (6)Mortgage Backed Securities and Other Investments The MBS held by the Partnership were issued by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association and the Government National Mortgage Association. Additional information on the MBS held is as follows: March 31, December 31, 1998 1997 Face Value $ 5,792,665 $ 6,106,003 Amortized Cost $ 5,803,456$ 6,117,095 Estimated Market Value $ 6,166,000$ 6,479,000 Coupon rates of the MBS ranged from 8.0% to 10.0% per annum and were due to mature in the years 2008 through 2017. In accordance with Financial Accounting Standard No. 115 "Accounting for Certain Investments in Debt and Equity Securities", unrealized holding gains and losses for available-for-sale securities are reported as a separate component of equity until realized. At March 31, 1998 and December 31, 1997, the Partnership had unrealized holding gains of $362,543 and $361,893, respectively, on its MBS investments to adjust to market value based on quoted market prices. (7)Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consisted of the following: March 31, December 31, 1998 1997 Accrued real estate taxes $ - $ 235,000 Other accrued expenses 182,210 229,097 Tenant security deposits - 187,668 Prepaid rent - 9,211 Accounts payable 1,919 - Distributions payable 28,397 - $ 212,526 $ 660,976 Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (8) Changes in Partners' Equity A summary of changes in Partners' equity (deficit) for the three months ended March 31, 1998 is as follows: Corporate Unrealized Total Limited General Holding Partners' Unitholders Partner Partners Gains on MBS Equity Balance at December 31, 1997 $47,281,562 $ 835 $(650,556)$ 361,893$46,993,734 Gain on sale of properties 3,725,434 50 - - 3,725,484 Unrealized holding gains on MBS - - - 650 650 Distributions (1,499,944) (20) (28,397) - (1,528,361) Net income 432,445 6 8,825 - 441,276 Balance at March 31, 1998 $49,939,497 $ 871 $(670,128)$ 362,543$49,632,783 The distributions payable to the General Partners totaled $28,397 and were included in accrued expenses and other liabilities at March 31, 1998. (9)Related Party Transactions The Partnership paid property management fees to affiliates of the General Partners for management services. Payment of these fees ended in conjunction with the sale of the Partnership's properties on January 30, 1998 (see Note 3). Pursuant to the management agreements, management fees were payable monthly at a rate up to 6% of the gross receipts, net of leasing commissions, from commercial properties under management and up to 5% of the gross receipts from residential properties under management. The Partnership continues to reimburse affiliates of the General Partners for certain expenses incurred in connection with the operation of the Partnership, including administrative expenses. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS, Continued (9) Related Party Transactions, Continued Amounts accrued or paid to the General Partners' affiliates were as follows: For the Three Months Ended March 31, 1998 1997 Property management fees $ 34,315 $ 91,061 Expense reimbursements 107,562 136,303 Charged to operations $141,877 $227,364 Due to affiliates consisted of expense reimbursements of $123,422 at March 31, 1998. In addition to the amounts above, costs paid to the General Partners' affiliates associated with the sale of the Partnership's remaining properties were $319,839 during the three months ended March 31, 1998. (10) Subsequent Event On April 29, 1998, the General Partners sold the Partnership's MBS portfolio to an unaffiliated third party for $5,923,541. KRUPP CASH PLUS-II LIMITED PARTNERSHIP Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements including those concerning Management's expectations regarding the future financial performance and future events. These forward-looking statements involve significant risk and uncertainties, including those described herein. Actual results may differ materially from those anticipated by such forward-looking statements. Liquidity and Capital Resources Based upon the General Partners' assessment of the current and future market conditions, the capital improvements necessary to remain competitive in the properties' respective markets and the Partnership's capital resources, the General Partners determined that it was in their best interests, and that of their respective investors, to sell the Partnership's remaining properties. On January 30, 1998, the General Partners sold all of the Partnership's properties to unaffiliated third parties. The properties were included in a package with nine other properties owned by affiliates of the General Partners. The total selling price of the fourteen properties was $138,000,000, of which the Partnership received $39,822,700 for the sale of its properties, less its share of the closing costs of $846,701 (see Note 3). The sale of the properties is considered a Terminating Capital Transaction, as defined by the Partnership Agreement. The Partnership anticipates making a special distribution of $5.25 per Unit in the second quarter of 1998, based upon approximately 80% of the proceeds of the sale and estimated liquidation value of remaining Partnership assets. Once all necessary reserves and contingent liabilities are funded, the remaining proceeds will be distributed. All Partnership affairs are expected to be completed by year-end. The Partnership held MBS that were guaranteed by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage Corporation ("FHLMC"). The Partnership had unrealized holding gains on its MBS of $362,543 and $361,893 at March 31, 1998 and December 31, 1997, respectively, to adjust the investments to market value (see Note 6). Subsequent to March 31, 1998, the General Partners sold the Partnership's MBS portfolio to an unaffiliated third party (see Note 10). In 1997, the Joint Venture Partners and Brookwood Village Joint Venture were named as defendants in a lawsuit filed by the previous owners of Brookwood Village related to a $5,000,000 lien retained by the seller. On February 28, 1997, Brookwood Village Joint Venture paid the discounted amount of $4,300,000 to the previous owner to release the lien and settle the lawsuit. The payment was funded by capital contributions of $2,150,000 from each of the Joint Venture Partners. Continued KRUPP CASH PLUS-II LIMITED PARTNERSHIP Operations Partnership The following discussion relates to the operations of the Partnership for the three months ended March 31, 1998 and 1997. The sale of the Partnership's properties (Encino Oaks Shopping Center, Alderwood Towne Center, Canyon Place Shopping Center, Coral Plaza Shopping Center and Cumberland Glen Apartments) on January 30, 1998, significantly impacts the comparability of the Partnership's operations between the two periods. Net income for the three months ended March 31, 1998 as compared to the three months ended March 31, 1997, net of activity of the Partnership's sold properties, increased as total revenue increased and total expenses decreased. Total revenue increased due to higher average cash and cash equivalent balances available for investment, as a result of the sale of the Partnership's properties. Proceeds of approximately $38,976,000 were received from the sale. This increase is partially offset by a decrease in MBS interest income due to repayments of principal on the MBS portfolio. Total expenses for the three months ended March 31, 1998, net of activity of the Partnership's sold properties, decreased when compared to the same period in 1997, due to a decrease in general and administrative expense. This decrease is the result of legal costs incurred in 1997 which related to the unsolicited tender offers to purchase Units of Depositary Receipts and the settlement of the Brookwood Village Joint Venture litigation (see Note 5). Joint Venture Brookwood Village was sold on May 13, 1997 to an unaffiliated third party. See Note 5 for further discussion of this matter. KRUPP CASH PLUS-II LIMITED PARTNERSHIP PART II - OTHER INFORMATION Item 1. Legal Proceedings Response: None Item 2. Change in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other Information Response: None Item 6. Exhibits and Reports on Form 8-K (a)Exhibits Response: None (b)Reports on Form 8-K Date Event Reported Financial Statements Filed January 30, 1998 Disposition of the Pro Forma Balance Sheet at Partnership's remaining September 30, 1997.properties Pro Forma Statements of Operations for the nine months ended September 30,1997 and for the year ended December 31, 1996. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Krupp Cash Plus-II Limited Partnership (Registrant) BY: /s/Wayne H. Zarozny Wayne H. Zarozny Treasurer and Chief Accounting Officer of the Krupp Corporation, a General Partner. DATE: May 13, 1998