U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly period ended March 31, 2002
( ) Transition Report Under Section 13 or 15(d) of the Exchange Act For
the Transition period from ____________ to
Commission File Number: 0-21604
Common Goal Health Care Pension and Income Fund L.P. II
(Exact name of small business issuer as specified in its charter)
Delaware 36-3644837
- --------------------------------- ----------------------
(State or other Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1100 Ocean Shore Blvd., Suite 10
Ormond Beach, Fl 32176
------------------------------
(Address of principal executive offices)
(386) 441-6633
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
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PART 1 - Financial Information
Item 1. Financial Statements
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
Balance Sheets
March 31, December 31,
2002 2001
-------- -----------
(Unaudited)
Assets
------
Cash and cash equivalents $ 479,041 472,242
Accrued interest receivable - related party 20,600 25,515
Note receivable 23,661
Mortgage loans receivable - related party 1,250,000 1,250,000
---------- ----------
Total Assets $1,749,641 $1,771,418
========== ==========
Liabilities and Partners' Capital
---------------------------------
Liabilities
- -----------
Due to affiliates $ 55,204 $ 61,130
Accrued distributions 47,904 47,224
Deferred revenue 400,000 400,000
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Total Liabilities 503,108 508,354
---------- ----------
Partners' capital:
- ------------------
General partners 57,781 56,997
Limited partners (522,116 units issued and outstanding) 1,188,752 1,206,067
---------- ----------
Total partners' capital 1,246,533 1,263,064
---------- ----------
Total Liabilities and Partners' Capital $1,749,641 $1,771,418
========== ==========
See accompanying notes
2
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
Statements of Income
(Unaudited)
THREE MONTHS ENDED
March 31, March 31,
2002 2001
---- ----
Revenue
- -------
Interest Income $ 45,777 $ 70,986
-------- --------
Total Revenue $ 45,777 70,986
Expenses
- --------
Professional fees 12,629 8,111
Fees to affiliates:
Management 1,010 1,374
Mortgage Servicing 249 250
Other 516 571
-------- --------
Total Expenses 14,404 10,306
Net Income and
Comprehensive Income $ 31,373 $ 60,680
======== ========
Net Income allocated to
general partners - 2.5% $ 784 $ 1,517
Net Income allocated to
limited partners - 97.5% 30,589 59,163
-------- --------
$ 31,373 $ 60,680
======== ========
Basic earnings per limited
partner unit $ .06 $ .12
======== ========
Weighted average limited 522,116 522,116
======== ========
partner units outstanding
See accompanying notes.
3
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
Statements of Partners' Capital
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2002 2001
------------------------------------------- ------------------------------------------
TOTAL TOTAL
GENERAL LIMITED PARTNERS' GENERAL LIMITED PARTNERS'
PARTNERS PARTNERS CAPITAL PARTNERS PARTNERS CAPITAL
Balance at beginning of period $ 56,997 $ 1,206,067 $ 1,263,064 $ 53,752 $ 1,265,161 $ 1,318,913
Net income 784 30,589 31,373 1,517 59,163 60,680
Distributions to partners -- (47,904) (47,904) -- (43,687) (43,687)
----------- ----------- ----------- ----------- ----------- -----------
Balance at end of period $ 57,781 $ 1,188,752 $ 1,246,533 $ 55,269 $ 1,280,637 $ 1,335,906
=========== =========== =========== =========== =========== ===========
See accompanying notes.
4
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED
------------------
March 31, March 31,
2002 2001
---------- ---------
Cash flows from operating activities:
Net income $ 31,373 $ 60,680
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease (increase) in interest receivable 4,915 (15,434)
Increase (decrease) in due to affiliates (5,926) 3,369
--------- ---------
Net cash provided by operating activities 30,362 48,615
--------- ---------
Cash flows from financing activities:
Distributions to limited partners (47,224) (43,140)
Payments received on note receivable 23,661
--------- ---------
Net cash used in financing activities (23,563) (43,140)
--------- ---------
Net increase in cash and cash equivalents: 6,799 5,475
Cash and cash equivalents, beginning of period 472,242 431,399
--------- ---------
Cash and cash equivalents, end of period $ 479,041 $ 436,874
========= =========
See accompanying notes.
5
COMMON GOAL HEALTH CARE
PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
Notes to Financial Statements
(Unaudited)
March 31, 2002
(1) Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
Common Goal Health Care Pension and Income Fund L.P. II (Partnership)
was formed on May 9, 1989, to invest in and make mortgage loans to
third parties and affiliates involved in health care. On July 2, 1990,
the Partnership commenced operations, having previously sold more than
the specified minimum of 117,650 units ($1,176,500). The Partnership's
offering terminated January 11, 1992 with the Partnership having sold
522,116 Units ($5,221,160).
The general partners are Common Goal Capital Group, Inc. II, the
managing general partner, and Common Goal Limited Partnership II, the
associate general partner. Under the terms of the Partnership's
agreement of limited partnership ("Partnership Agreement"), the general
partners are not required to make any additional capital contributions
except under certain limited circumstances upon termination of the
Partnership.
Under the terms of the Partnership Agreement, the Partnership is
required to pay a quarterly management fee to the managing general
partner equal to 1% per annum of adjusted contributions, as defined. A
mortgage servicing fee equal to .25% per annum of the Partnership's
outstanding mortgage loan receivable principal amount also is to be
paid to Common Goal Mortgage Company, an affiliate of the general
partners. Additionally, under the terms of the Partnership Agreement,
the Partnership is required to reimburse the managing general partner
for certain operating expenses.
The Partnership classifies all short-term investments with maturities
at date of purchase of three months or less as cash equivalents.
Mortgage loans that have virtually the same risk and potential rewards
as joint ventures are accounted for and classified as investments in
operating properties. Cash received related to investments in operating
properties is recognized as interest income to the extent that such
properties have earnings prior to the recognition of the distribution
of cash to the Partnership; otherwise, such cash is recorded as a
reduction of the related investments.
6
An allowance for loan losses will be provided, if necessary, at a level
which the Partnership's management considers adequate based upon an
evaluation of known and inherent risks in the loan portfolio. Currently
management believes no allowance for loan losses is necessary.
No provision for income taxes has been recorded as the liability of
such taxes is that of the partners rather than the Partnership.
Earnings per limited partner unit is computed based on the weighted
average limited partner units outstanding for the period.
The accompanying unaudited financial statements as of and for the three
months ended March 31, 2002 and 2001 are the representation of
management and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position
and results of operations of the Partnership. All such adjustments are
normal and recurring. These results are not necessarily indicative of
the results for the entire year.
These financial statements should be read in conjunction with the
Company's financial statements and notes included in the Annual Report
on Form 10-KSB filed by the Company with the Securities and Exchange
Commission on April 1, 2002.
(2) Mortgage Loans Receivable
-------------------------
Loans to St. Catherine's Centers.
--------------------------------
As of March 31, 2002, the Partnership had 10 mortgage loans outstanding
to affiliated borrowers (the "Borrowers"). The mortgage loans are
secured by second and third positions on properties owned by the
Borrowers (the properties being collectively referred as the "St.
Catherine's Centers" and the mortgage loans being referred to as the
"St. Catherine's Loans"). The principal balances outstanding for the
St. Catherine Loans as of March 31, 2002 were as follows:
Second Mortgage Loan Third Mortgage Loan
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
--------- ---------
400,000 $ 850,000
========= =========
7
On April 20, 2001, the Partnership and the Borrowers agreed to: (i)
extend the terms of the second and third mortgage loans, which had been
scheduled to mature on April 20, 2001 to April 20, 2004, so that the
second and third mortgage loans would be coterminous with the
underlying first mortgage: (ii) adjust the applicable annual interest
rate payable under the second mortgage loans from and after April 20,
2001, to 9.75%; (iii) adjust the applicable annual interest rate
payable under the third mortgage loans from and after April 20, 2001,
to 10.75%; and (iv) require the Borrowers to pay extension fees to the
Partnership totaling $10,500. The Borrowers paid the $10,500 extension
fees on August 31, 2001. As of March 31, 2002, the Borrowers were
current in their payments on the second and third mortgage loans. As of
March 31, 2002, the Partnership had accrued $20,600 of interest payable
for the first quarter of 2002, which interest was due and payable in
the second quarter of 2002. Additionally, as of March 31, 2002, the
Borrowers had completely repaid a promissory note issued in connection
with interest and fees that had been past due on April 20, 2001, when
the mortgage loans were refinanced. As of that date, the Partnership
was owed $69,294 for such late interest and fees. The promissory note
issued on April 20, 2001, required payments of interest at an annual
rate of 7% and was payable in monthly installments over twelve months.
The Partnership received interest payments of approximately $2,600 over
the life of the promissory note.
(3) Partners' Capital
-----------------
On January 22, 2002, the Partnership paid an accrued distribution of
$47,224 ($.09 per unit) to Limited Partner unitholders of record at
December 15, 2001. On April 13, 2002, the Partnership declared a
distribution of $ 47,904 ($.09 per unit) to Limited Partner unitholders
of record at March 15, 2002, which distribution was made on or about
April 22, 2002.
Since the Partnership's inception, the Limited Partner unitholders have
received $5,853,744 in cumulative distributions.
Item 2. Management's Discussion and Analysis or Plan of Operations.
----------------------------------------------------------
General
-------
Some statements in this Form 10-QSB are forward looking and actual
results may differ materially from those stated. As discussed herein,
among the factors that may affect actual results are changes in the
financial condition of the Borrowers and/or anticipated changes in
expenses or capital expenditures.
Common Goal Health Care Pension and Income Fund L.P. II, a Delaware
limited partnership (the "Partnership"), was formed to make mortgage
loans secured by a mix of first and junior liens on health care-related
properties. The Partnership commenced its offering of Units to the
public on January 12, 1990, and commenced operations on July 2, 1990
(having sold the Minimum Number of Units as of that date). After having
raised $5,221,160 by selling Units to 483 investors, the Partnership
terminated the public offering
8
on January 11, 1992. The Partnership has 10 mortgage loans, consisting
of second and third positions secured by properties owned by affiliated
entities (collectively, the "St. Catherine's Care Center").
The Partnership's mortgage loans pay Basic Interest which is payable at
higher rates than are being earned on temporary investments and provide
for payments of Additional Interest and Participations. The movement of
funds from mortgage loans to short-term investments has increased the
Partnership's overall liquidity, but has lowered expected interest
income. The Partnership has structured its mortgage loans to provide
for payment of quarterly distributions to Limited Partners from
investment income.
Liquidity and Capital Resources
-------------------------------
Partnership assets decreased from $1,771,418 at December 31, 2001 to
$1,749,641 at March 31, 2002. The decrease of $21,777 resulted
primarily from cash distributions during the period ($47,904), being
partially offset by net earnings for the period ($31,373). As of March
31, 2002, the Partnership's loan portfolio consisted of ten mortgage
loans secured by properties owned by the St. Catherine's Care Centers,
the aggregate outstanding principal balance of which was $ 1,250,000.
The Partnership has structured the St. Catherine's Loans to provide for
payment of quarterly distributions from investment income. The interest
derived from the St. Catherine's Loans, repayments thereof and interest
earned on short-term investments contribute to the Partnership's
liquidity. These funds are used to make cash distributions to Limited
Partners and to pay normal operating expenses as they arise.
The Partnership maintains working capital reserves of 2% of gross
proceeds of the offering, an amount which is anticipated to be
sufficient to satisfy liquidity requirements. The Managing General
Partner continues monitoring the level of working capital reserves.
As of March 31, 2002, the Partnership was owed $20,600 for interest
accrued during the first quarter for the second and third mortgage
loans. As of March 31, 2002, the Borrowers were current in their
payments on the second and third mortgage loans. Additionally, as of
March 31, 2002, the Partnership had been completely repaid by the St.
Catherine's Care Centers pursuant to the promissory note agreement
entered into by the two entities in connection with the refinancing of
the mortgage loans on April 20, 2001. As of that April date, the
Partnership had been owed $69,294 for all late interest and fees on the
third mortgages. The promissory note, signed April 20, 2001, required
payment of interest at an annual rate of 7% and was payable in monthly
installments over twelve months. The Partnership received interest
payments of approximately $2,600 over the life of the promissory note.
9
The April 20, 2001 maturity date of the senior debt secured by the St.
Catherine's Care Centers properties (the "Senior Debt"), as well as of
the Partnership's mortgage loans has been extended to April 20, 2004 as
further described below.
The St. Catherine's Care Centers have refinanced the Senior Debt. The
refinanced Senior Debt has a term of three years and a fixed interest
rate of 8.25% per year (the "Senior Debt Rate"). As of April 20, 2001,
the Partnership and the St. Catherine's Care Centers entered into
agreements to: (i) extend the terms of the second and third mortgage
loans, so that the maturity dates will coincide with maturity date of
refinanced Senior Debt (April 20, 2004); (ii) adjust the applicable
annual interest rate payable under the second mortgage loans from and
after April 20, 2001, to 9.75% (or 1.5% above the Senior Debt Rate);
(iii) adjust the applicable annual interest rate payable under the
third mortgage loans from and after April 20, 2001, to 10.75% (or 2.5%
above the Senior Debt Rate); and (iv) require the St. Catherine's Care
Centers to pay extension fees to the Partnership totaling $10,500. The
adjustment to the interest rates of the second and third mortgage loans
reflect current market rates that the General Partner believes should
be applicable to the Mortgage loans, as extended. The aggregate
principal amount of the refinanced second and third Mortgage loans held
by the Partnership equals $1,250,000. In connection with the
refinancing of the St. Catherine's Loans, the St. Catherine's Care
Centers additionally agreed as of April 20, 2001 to pay the Partnership
$69,294 representing all late interest and fees on the third mortgage
loans outstanding, as of April 20, 2001. The Borrowers agreed to pay
the Partnership such amount in the form of a promissory note dated as
of April 20, 2001, bearing interest at an annual rate of 7% and payable
in monthly installments over the twelve months.
In addition to the St. Catherine's Loans, there is a contingent payment
obligation owed by St. Catherine's of Seneca, Inc. in the amount of
$202,500 and a contingent payment obligation owed by St. Catherine's
Care Centers of Fostoria, Inc. in the amount of $238,000 in
participation income 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.
The facilities underlying the St. Catherine's Loans were leased to an
unaffiliated third party in November 1998 (the "Lessor"). The Lessee
continues to lease the facilities. The Lessee did not assume the St.
Catherine's Loans.
Results of Operations
---------------------
The Partnership commenced operations July 2, 1990, and funded its first
mortgage loan in November 1990. As of June 30, 1991, the Partnership
had completed its portfolio of Mortgage loans. The interest earned on
these investments has stabilized on a tax accounting basis.
Accordingly, the General Partners expects the Partnership's earnings to
remain relatively constant.
10
During the three months ended March 31, 2002 and 2001, the Partnership
had net earnings of $31,373 and $60,680, based on total revenue of
$45,777 and $70,986 and total expenses of $14,404 and $10,306. For the
three months ended March 31, 2002 and 2001, the net earnings per
limited partner unit was $.06 and $.12 respectively.
The decrease in net earnings of $29,307 for the three months ended
March 31, 2002, compared to the three months ended March 31, 2001, is
due to a decrease in interest income of $25,209 and an increase of
$4,518 in professional fees. Interest income declined for the three
months ended March 31, 2002 compared to the three months ended March
31, 2001, due to the decline in interest rate earned on the outstanding
mortgage loans receivable balance, decline in interest earned from cash
balances and the absence of income from late fees during the quarter
ended March 31, 2002.
The Partnership's success and the resultant rate of return to Limited
Partners will be dependent upon, among other things, the ability of the
Managing General Partner to identify suitable opportunities for the
Partnership to reinvest its assets and the ability of the borrowers to
pay the current interest, additional interest and principal of the
Mortgage loans.
PART II - OTHER INFORMATION
Items 1 through 5 are omitted because of the absence of conditions
under which they are required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
11
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Common Goal Health Care Pension and Income Fund L.P. II
-------------------------------------------------------
(Registrant)
By: Common Goal Capital Group, Inc., II
Managing General Partner
DATED: May 14, 2002 /s/Albert E. Jenkins, III
-------------------------
Albert E. Jenkins, III
President, Chief Executive Officer
and Acting Chief Financial Officer
12