1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 1995
[ ] Transition Report Under Section 13 or 15(d) of the Exchange
Act For the Transition period from _______________ to _______________
Commission File Number: 0-17600
Common Goal Health Care Participating Mortgage Fund L.P.
----------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 52-1475268
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6920 Donachie Road, #209
Baltimore, Maryland 21239
---------------------------------------------
(Address of principal executive offices)
(410) 828-4344
---------------------------------------------
(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
------ -----
1
2
PART I - Financial Information
Item 1. Financial Statements
COMMON GOAL HEALTH CARE PARTICIPATING MORTGAGE FUND L.P.
(A Limited Partnership)
Balance Sheets
September 30, December 31,
1995 1994
(Unaudited)
------------ -----------
Assets
------
Current Assets
Cash and cash equivalents $1,305,908 7,002,601
Mortgage interest receivable 111,864 180,114
---------- ---------
Total current assets 1,417,772 7,182,715
Mortgage loans receivable 3,567,664 3,567,664
---------- ----------
$4,985,436 10,750,379
========== ==========
Liabilities and Partners' Capital
---------------------------------
Current Liabilities
Accounts payable and accrued
expenses $ 23,416 22,973
Due to affiliates 1,835 ---
---------- ----------
Total current liabilities 25,251 22,973
Partners' capital 4,960,185 10,727,406
---------- ----------
$4,985,436 10,750,379
========== ==========
See accompanying notes.
2
3
COMMON GOAL HEALTH CARE PARTICIPATING MORTGAGE FUND L.P.
(A Limited Partnership)
Statements of Earnings
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
Income
- ------
Interest $ 160,378 234,971 572,972 859,509
Misc. income --- 132,000 --- 132,000
---------- --------- --------- ---------
160,378 366,971 572,972 991,509
---------- --------- --------- ---------
Expenses
- --------
Professional fees 24,815 17,250 127,209 93,718
Fees to affiliates:
Management 18,992 30,242 72,601 98,226
Mortgage servicing 5,167 5,167 15,502 15,877
Other 23,001 25,543 80,904 61,871
---------- --------- --------- ---------
71,975 78,202 296,216 269,692
---------- --------- --------- ---------
NET EARNINGS $ 88,403 288,769 276,756 721,817
========== ========= ========= =========
Net earnings per limited partner
unit $ .05 .15 .14 .38
========== ========= ========= =========
Weighted average limited partner
units outstanding 1,911,411 1,911,411 1,911,411 1,911,411
========== ========= ========= =========
3
4
COMMON GOAL HEALTH CARE PARTICIPATING MORTGAGE FUND L.P.
(A Limited Partnership)
Statements of Partners' Capital
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
--------------------------------------- -----------------------------------------------
TOTAL TOTAL
GENERAL LIMITED PARTNERS' GENERAL LIMITED PARTNERS'
PARTNERS PARTNERS CAPITAL PARTNERS PARTNERS CAPITAL
-------- -------- ------- -------- -------- -----------
Balance at beginning
of period $147,246 10,580,160 10,727,406 145,688 14,546,499 14,692,187
Net earnings 5,535 271,221 276,756 14,436 707,381 721,817
Cash distributions to
partners (111,830) (5,932,147) (6,043,977) --- (4,272,749) (4,272,749)
--------- ----------- ----------- ------- ----------- -----------
Balance at end of period $ 40,951 4,919,234 4,960,185 160,124 10,981,131 11,141,255
========= =========== =========== ======= =========== ===========
See accompanying notes.
4
5
COMMON GOAL HEALTH CARE PARTICIPATING MORTGAGE FUND L.P.
(A Limited Partnership)
Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
Cash flows from operating activities:
Net earnings $ 276,756 721,817
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Increase in due from affiliates --- ( 5,701)
Increase in other receivables --- ( 42,076)
Decrease in interest receivable 68,250 175,150
Increase (decrease) in accounts
payable and accrued expenses 443 ( 1,649)
Increase (decrease) in due to
affiliates 1,835 ( 415)
------------ -----------
Net cash provided by operating
activities 347,284 847,126
------------ -----------
Cash from investing activities -
Proceeds from mortgage loan
principal repayments --- 3,600,000
------------ -----------
Cash used in financing activities -
Distribution to general partner ( 111,830) ---
Distribution to limited partners ( 5,932,147) (4,272,749)
------------ -----------
( 6,043,977) (4,272,749)
------------ -----------
Net increase (decrease) in cash
and cash equivalents ( 5,696,693) 174,377
Cash and cash equivalents,
beginning of period 7,002,601 7,224,916
------------ -----------
Cash and cash equivalents,
end of period $ 1,305,908 7,399,293
============ ===========
See accompanying notes.
5
6
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(A Limited Partnership)
Notes to Financial Statements
(Unaudited)
September 30, 1995
(1) Organization and Summary of Significant Accounting Policies
Common Goal Health Care Participating Mortgage Fund L.P. (Partnership) was
formed on August 20, 1986 to invest in and make mortgage loans to
third-parties involved in health care. On July 21, 1987, the Partnership
commenced operations, having previously sold more than the specified
minimum of 116,000 units ($1,160,000). The Partnership's offering
terminated on February 20, 1989 with the Partnership having sold the
specified maximum of 1,912,911 units ($19,129,110).
The general partners are Common Goal Capital Group, Inc. as the managing
general partner and Common Goal Limited Partnership I as the minority
general partner. Under the terms of the Partnership's agreement of
limited partnership (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 is required
to pay a quarterly management fee to the managing general partner equal to
.75% per annum of adjusted contributions, as defined. Additionally, a
mortgage servicing fee equal to .25% per annum of the Partnership's
outstanding mortgage loan principal amount 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
dates of purchase of three months or less as cash equivalents.
An allowance for loan losses is provided at a level which the
Partnership's management considers adequate based upon an evaluation of
known and inherent risks in the loan portfolio. Management believed no
allowance was necessary as of September 30, 1995.
6
7
No provision for income taxes has been recorded as the liability for such
taxes is that of the partners rather than the Partnership.
Earnings per limited partner unit are 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 and nine months ended September 30, 1995 and 1994 are the
representation of management and reflect all adjustments which are, in the
opinion of management, necessary to a fair presentation of the financial
position and results of operations of the Partnership. Such adjustments
are normal and recurring.
(2) Mortgage Loans Receivable
Information concerning mortgage loans receivable as of September 30, 1995
is as follows:
Face and
Basic carrying
interest Maturity Prior amount of
Description rate date liens mortgages
- ----------- ---- ---- ----- ---------
Westwood loan 11.5% March 10, 1998 3,200,000 1,000,000
Winthrop loan 11.5% March 25, 1998 7,200,000 1,000,000
Honeybrook loan 13.7% January 1, 2000 8,810,000 1,567,664
--------- ---------
$19,210,000 3,567,664
=========== =========
The loans are second mortgage loans secured by health care-related real
properties. Interest is payable monthly with the principal balance
generally due at maturity. The loans generally provide for the payment of
additional interest based upon gross revenues of the properties and the
payment of participation interests ranging from 9-30% of the increase in
the fair market value of the properties at maturity or redemption, as
defined.
On July 7, 1994, the borrowers on the SHALP Loan repaid the principal
balance of $3,300,000, and paid the related prepayment penalty of
$132,000, additional interest of $60,752 based on 1994 gross revenues
through May, 1994, and $23,421 in basic interest. The determination of
the amount of the Participation, if any, owing under the loan documents
has been delayed pending receipt of an appraisal to determine the
appreciation in value. The Managing General Partner has had the appraisal
performed and it was completed on September 8, 1995. The Managing General
Partner has now requested that the
7
8
borrowers on the SHALP Loan provide certain additional information to
allow a determination of whether a participation is owing under the loan
documents. No accrual for the participation has been made as of September
30, 1995.
Income received on the SHALP Loan since its inception is $2,412,788 in
basic interest, $900,885 in additional interest based upon gross revenues,
and $132,000 prepayment penalty (a total of $3,445,673 earned on
$3,300,000 over six years and nine months).
The carrying value of the mortgage loans for tax purposes is the same as
that for financial reporting purposes. All properties are subject to a
first mortgage lien in each case held by unaffiliated third parties. As
of September 30, 1995, none of the loans were delinquent as to regular
interest and all loans have paid the annual gross revenue interest.
(3) Subsequent Event
On October 5, 1995, the Partnership declared and paid a quarterly
distribution of $236,840 to Unitholders of record at September 15, 1995,
and an annual distribution of $101,582 to Unitholders of records at
September 30, 1995.
8
9
Item 2. Management's Discussion and Analysis or Plan of Operations
Liquidity and Capital Resources
Common Goal Health Care Participating Mortgage Fund L.P., a Delaware
limited partnership (the "Partnership"), was formed to make mortgage
loans secured by real property (the "Mortgage Loan") comprised of a
mix of first and junior Mortgage Loans, secured by health-care
related properties. The Public Offering commenced on February 20,
1987 and continued through February 20, 1989, when the Public
Offering terminated. Total gross offering proceeds raised were
$19,129,110.
Partnership assets decreased from $10,750,379 at December 31, 1994 to
$4,985,436 at September 30, 1995 primarily due to principal pay-backs
to the Limited Partners. As of September 30, 1995, the portfolio
consists of 3 Mortgage Loans with an aggregate outstanding principal
balance of $3,567,664.
The Partnership has structured its Mortgage Loans to provide for
payment of quarterly distributions from investment income. The
interest derived from the Mortgage Loans, repayments of Mortgage
Loans and interest earned on short-term investments contribute to the
Partnership's liquidity. These funds are used to make cash
distributions to Limited Partners, to pay normal operating expenses
as they arise and, in the case of repayment proceeds, may, subject to
certain exceptions, be used to make additional Mortgage Loans.
The Partnership's balance of cash and cash equivalents at September
30, 1995 and December 31, 1994 was $1,305,908 and $7,002,601,
respectively, which consisted of operating cash and working capital
reserves. The decrease in cash and cash equivalents from December
31, 1994 to September 30, 1995 resulted from the payment of a
$5,000,000 ($2.616 per Unit) capital distribution to the limited
partners and payment of $932,147 in dividend distributions to the
limited partners (which included $655,391 [$.343 per Unit] as a
return of capital), and $111,830 distributed to the general partner.
However, the decrease in cash and cash equivalents was partially
offset by net earnings of $276,756, receipt of $68,250 in interest
receivable, and an increase of $1,835 in due to affiliates.
The Partnership is required to maintain reserves of not less than 1%
of gross offering proceeds (not less than $191,291), but maintains a
reserve in excess of that
9
10
amount. The Managing General Partner continues to monitor the level
of working capital reserves and may adjust the reserves as necessary
to meet the Partnership's reserve requirements.
The Partnership's success and the resultant rate of return to
Unitholders is dependent upon, among other things, (a) the rate of
return on the Partnership's cash and cash equivalents and (b) the
ability of the borrowers to pay the current interest, additional
interest and principal of the Mortgage Loans.
Since the Horizon Loan was charged off, the Riverview, SHALP and New
Medico Loans have been paid off, and the Joint Venture Loan and the
Westwood Loan have been paid down, the Partnership's rates of return
have been and will be adversely impacted. However, the Partnership
will continue to pursue its pending litigation against the original
Horizon borrower and its general partners and affiliates of the
original lessee, certain Adventist groups. Also, the additional
funds representing repayment of the above mentioned loans are being
invested per Partnership guidelines.
Results of Operations
Since commencement of operations in July of 1987, the Partnership has
invested all available funds (funds not yet invested in Mortgage
Loans) in short-term, temporary investments. The interest earned on
these investments has been and is expected to continue to be less
than the interest rates achievable on Mortgage Loans made by the
Partnership. Although the Partnership's earnings were expected to
increase slowly once its portfolio of Mortgage Loans was
substantially completed and borrowers commenced payments of
Additional Interest, the default on the Partnership's $1,400,000
Horizon Loan (made in July 1988) which occurred in July of 1990 has
adversely impacted such expectation.
During the quarters ended September 30, 1995 and 1994, the
Partnership had net earnings of $88,403 and $288,769 based on total
revenues of $160,378 and $366,971, and total expenses of $71,975 and
$78,202, respectively. The decrease in net earnings is due to a
decrease in interest income caused by the 1994 payoffs of the New
Medico, Riverview and SHALP Loans, and the 1994 pay downs of the
Joint Venture and Westwood Loans. The General Partners anticipate
that the Partnership's expenses (other than those relating to the
Horizon Loan Litigation) incurred in 1995 will approximate the
expenses incurred in 1994. The Mortgage Loans were all current as of
September 30,
10
11
1995. The General Partners expect these loans will continue to
perform pursuant to the loan documents.
On July 8, 1988, the Partnership funded a $1,400,000, ten year
mortgage loan (the "Horizon Loan") to Horizon HealthCare, an Oregon
general partnership (the "Horizon Borrower"), secured by a second
lien on a 150-bed nursing facility in Moore, Oklahoma and an 89-bed
nursing facility and a 200-bed nursing facility each in Norman,
Oklahoma (the "Horizon Facilities"). At the time of funding, the
Horizon Facilities were leased on a triple-net basis to a substantial
not-for-profit corporation. At the time the Partnership entered into
its loan agreement with the Horizon Borrower in June of 1988, the
Partnership received tenant estoppel letters executed by certain
officers of Adventist Living Centers, Inc., a Wisconsin
not-for-profit corporation ("ALC") concerning certain leases then in
effect between the Horizon Borrower and ALC. In July, 1990, the
Partnership notified the Horizon Borrower that it was in default on
the Horizon Loan for failure to make payments, and in September,
1990, the Partnership sent the Horizon Borrower a notice of intent to
foreclose. On or about November 20, 1990, the Horizon Borrower
transferred legal title to the Horizon Facilities to an affiliated
corporation ("New Owner") allegedly in violation of the mortgages of
the Partnership and of the senior lender, and immediately thereafter,
the New Owner instituted bankruptcy proceedings for reorganization
under Chapter 11 in Federal Bankruptcy Court in Cleveland County,
Oklahoma. The Partnership has since pursued litigation in the
Circuit Court of DuPage County of Illinois seeking recoveries related
to obligations owed to the Partnership pursuant to the Horizon Loan
(the "Horizon Loan Litigation"). The Court set the close of
discovery in the Horizon Loan Litigation for January 26, 1995 and set
a Final Status as of that same date. The Court then subsequently
extended this date to April 5, 1995. A hearing was held April 6,
1995 at which a trial date of October 23, 1995 was set. Discovery
has been completed and an amended complaint was filed by the
Partnership in early May, 1995. On October 6, 1995 the Court
subsequently approved the Partnership's motion to include the
Adventist Church as an additional defendant in the case. The Court
also granted the Adventists a 60-90 day extension for discovery. The
anticipated new trial date will probably be in December, 1995 or
January, 1996. The Partnership continues to prepare for trial. The
Partnership is seeking $1.4 million (principal amount of the loan to
Horizon) plus interest owing and punitive damages. As the General
Partners cannot presently predict the outcome of the other actions
being considered
11
12
in connection with the Horizon Loan default, they cannot predict with
any accuracy the impact thereof for future years.
Although the Partnership made quarterly dividend distributions
totalling $1,168,987 through October 5, 1995, the distributions may
not remain at the present level (9.256% of invested capital) as a
result of the Horizon Loan charge-off, the payoffs and the pay downs
mentioned above. The General Partners are currently reviewing the
distribution policy. The Partnership receives a lesser rate of
return from its short-term investments than it would receive from the
Mortgage Loans, (were they not paid down) thereby reducing interest
income available for distribution. The Partnership distributed
$5,000,000 as a return of capital on May 1, 1995.
12
13
PART II - Other Information
Items 1 through 6 are omitted because of the absence of conditions under
which they are required.
13
14
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 Participating Mortgage Fund L.P.
--------------------------------------------------------
(Registrant)
By: Common Goal Capital Group, Inc.
Managing General Partner
DATED: November 3, 1995 /s/ Albert E. Jenkins, III
--------------------------
Albert E. Jenkins, III
President, Chief Executive Officer
and Acting Chief Financial Officer
14