- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ------------------ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED COMMISSION FILE NUMBER MARCH 31, 1996 0-15537 ------------------ KEYSTONE MORTGAGE FUND II, A CALIFORNIA LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter.) CALIFORNIA 95-4061580 (State of Incorporation) (I.R.S. Employer Identification No.) 11340 W. OLYMPIC BOULEVARD SUITE 300 LOS ANGELES, CALIFORNIA 90064-1661 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 479-4121 ------------------ Indicated by check mark whether the registrant (1) has filed all report required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- KEYSTONE MORTGAGE FUND II A CALIFORNIA LIMITED PARTNERSHIP INDEX PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements. (a) Condensed Balance Sheets, December 31, 1995 and March 31, 1996. ... 3 (b) Condensed Statements of Income, three months ended, March 31, 1996 and 1995. ........................................ 4 (c) Condensed Statements of Partners' Capital (Deficit) for the year ended December 31, 1995 and the three months ended March 31, 1996. ................................................. 5 (d) Condensed Statements of Cash Flows, three months ended March 31, 1996 and 1995. ........................................ 6 (e) Notes to condensed financial statements. .......................... 7 & 8 Item 2. Management's discussion and analysis of financial condition and results of operations...................................... 9 PART II. OTHER INFORMATION Item 6. Exhibits and reports on Form 8-K ................................. 10 2 KEYSTONE MORTGAGE FUND II, A CALIFORNIA LIMITED PARTNERSHIP BALANCE SHEETS ASSETS (Unaudited) *December 31 March 31 1995 1996 ------------------------- Current assets: Cash and cash equivalents ........................................ $ 93,997 $ 5,936 Short-term investments (market value of $1,085,049 in 1995 and $1,226,292 in 1996)......................................... 1,083,120 1,211,867 Interest receivable on trust deed notes receivable ............... 10,005 9,753 Current portion of trust deed notes receivable (note B) .......... 36,218 36,220 ------------------------- Total current assets ........................................... 1,223,340 1,263,776 Trust deed notes receivable, net (note B)........................... 1,432,975 1,426,007 ------------------------- $2,656,315 $2,689,783 ------------------------- ------------------------- LIABILITIES AND PARTNERS' CAPITAL Current Liabilities: Accounts payable and other liabilities............................ $ 641 $ 638 Due general partners.............................................. 249,000 251,500 ------------------------- Total Current Liabilities................................... 249,641 252,138 Partners' capital: General Partners.................................................. (207,958) (207,648) Limited Partners - 41,459 units outstanding in 1996 and 1995 respectively .................................................. 2,614,632 2,645,293 ------------------------- Net partners' capital....................................... 2,406,674 2,437,645 ------------------------- $2,656,315 $2,689,783 ------------------------- ------------------------- See accompanying notes to financial statements. *Extracted from audited December 31, 1995 financial statements. 3 KEYSTONE MORTGAGE FUND II, A CALIFORNIA LIMITED PARTNERSHIP CONDENSED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended March 31 1996 1995 -------------------- Revenue: Interest on mortgage loans .................... $ 29,989 $ 66,066 Interest on short-term investments ............ 19,497 15,511 -------------------- ......................................... 49,486 81,577 Expenses: Servicing related expenses .................... 13,223 13,816 General and administrative expenses............ .5,292 243,903 -------------------- 18,515 257,719 -------------------- NET INCOME (Loss)........................ $30,971 $(176,142) -------------------- -------------------- Weighted average number of limited partnership units outstanding................... 41,459 41,459 -------------------- -------------------- Net income (loss) per limited partnership unit ............................... $ .75 $ (4.25) -------------------- -------------------- 4 KEYSTONE MORTGAGE FUND II, A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF PARTNER'S CAPITAL (DEFICIT) General Limited Partners Partners Total ---------- ---------- ---------- Balance at December 31, 1995 ....................... ($207,958) $2,614,632 $2,406,674 Net income three months ended March 31, 1996 310 30,661 30,971 ------------------------------------ Balance as of March 31, 1996 (unaudited) ........... ($207,648) $2,645,293 $2,437,645 ------------------------------------ ------------------------------------ 5 KEYSTONE MORTGAGE FUND II, A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS Three Months Ended March 31 --------------------------- 1996 1995 --------- ---------- OPERATING ACTIVITIES: Net Income (loss) ........................................ $ 30,971 $(176,142) Changes in operating assets and liabilities: Amortization of net origination fees .................. (425) (427) Decrease (Increase) in interest receivable ............ 252 (707) Increase in due general partners ...................... 2,500 241,500 Decrease in accounts payable .......................... (3) (283) ---------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES .............................. 33,295 63,941 INVESTING ACTIVITIES: Decrease in notes receivable.............................. 7,391 39,182 Increase in short-term investments........................ (128,747) (249,657) ---------------------- NET CASH PROVIDED BY INVESTING ACTIVITIES:........................................ (121,356) (210,475) ---------------------- Decrease in cash and cash equivalents .................... (88,061) (146,534) Cash and cash equivalents at beginning of year ........... 93,997 207,216 ---------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 5,936 $ 60,682 --------- --------- --------- --------- 6 KEYSTONE MORTGAGE FUND II, A CALIFORNIA LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS NOTE A - UNAUDITED BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared by Keystone Mortgage Fund II in accordance with generally accepted accounting principles, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying condensed financial statements contain all adjustments necessary, which were of normal recurring nature, for a fair statement of the results for the interim periods presented. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in Form 10-K for the year ended December 31, 1995 filed by the Company under the Securities Exchange Act of 1934. 7 KEYSTONE MORTGAGE FUND II, A CALIFORNIA LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) (B) TRUST DEED NOTES RECEIVABLE Monthly Payment, including December 31 March 31 interest 1995 1996 --------- ----------- ---------- First trust deed on industrial building, interest rate, adjusted every six months at 2.65% plus 11th District monthly weighted average cost of funds, due February 1, 1999 ............. $16,797 $1,538,433 $1,531,042 ------- ------- Less current portion ................................................ 36,218 36,220 Less net deferred loan origination fees.............................. 5,240 4,815 Less allowance for loss.............................................. 64,000 64,000 ------------------------ Net concurrent trust deed notes receivable ...................... $1,432,975 $1,426,007 ---------- ---------- ---------- ---------- 8 KEYSTONE MORTGAGE FUND II, A CALIFORNIA LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Total revenue decreased $32,091 or 39.3% for the three months ended March 31, 1996 over the same period March 31, 1995. This decrease was due to a decrease in interest income from mortgage loans as a result of loan payoffs and distribution of capital to Limited partners, less required reserves. Total expenses decreased $239,204 for the three months ended March 31, 1996 over the same period March 31, 1995. Servicing related expenses decreased 4.3% and G & A expenses decreased $238,611 for the three months ended March 31, 1996 over the same period March 31, 1995. During the first quarter of 1995, a determination was made by the general partners to seek reimbursement for which they were otherwise entitled. The amount of general and administrative expenses were determined to be $241,500. Net income increased $207,713 for the three months ended March 31, 1996 over the same period March 31, 1995. Net income per limited partnership unit increased $5.00 for the three months ended March 31, 1996 over the same 1995 period. Working capital increased $37,939 for three months ended March 31, 1996. The Partnership has adequate working capital and cash reserves to carry on its business. 9 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The Registrant filed no reports on Form 8-K during the quarter ended March 31, 1996. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KEYSTONE MORTGAGE FUND II a California Limited Partnership Date: May , 1996 /s/ JOHN P. SULLIVAN ---------------------------------- Keystone Mortgage Company By: John P. Sullivan, President Date: May , 1996 /s/ JOHN P. SULLIVAN ---------------------------------- John P. Sullivan General Partner Date: May , 1996 /s/ CHRISTOPHER E. TURNER ---------------------------------- Christopher E. Turner General Partner 11