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 June 30, 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
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(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
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
June 30, December 31,
2002 2001
----------- ------------
(Unaudited)
ASSETS
------
Cash and cash equivalents $ 456,003 472,242
Accrued interest receivable - related party 21,134 25,515
Note receivable - 23,661
Mortgage loans receivable - related party 1,250,000 1,250,000
---------- ---------
Total Assets $1,727,137 $1,771,418
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES
- -----------
Due to affiliates $ 56,353 $ 61,130
Accrued distributions 44,839 47,224
Deferred revenue 400,000 400,000
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Total Liabilities 501,192 508,354
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PARTNERS' CAPITAL:
- -----------------
General partners 58,388 56,997
Limited partners (522,116 units issued
and outstanding) 1,167,557 1,206,067
---------- ----------
Total partners' capital 1,225,945 1,263,064
---------- ----------
Total Liabilities and Partners' Capital $1,727,137 $1,771,418
========== ==========
See accompanying notes
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
Statements of Income
(Unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------
Revenue
Interest Income $ 89,254 $ 119,958 $ 44,682 $ 48,972
Other Income 2,065 10,500 860 10,500
---------- ---------- ---------- ----------
Total Revenue $ 91,319 $ 130,458 $ 45,542 $ 59,472
EXPENSES
- --------
Professional fees 31,913 41,279 16,012 33,168
Fees to affiliates:
Management 1,902 2,624 892 1,250
Mortgage Servicing 500 500 250 250
Other 1,380 1,252 863 681
---------- --------- ---------- ----------
Total Expenses 35,695 45,655 21,292 35,349
Net Income and
Comprehensive Income $ 55,624 $ 84,303 $ 24,249 $ 24,123
========== ========== ========== ==========
Net Income allocated to
general partners - 2.5% $ 1,391 $ 2,120 $ 606 $ 603
Net Income allocated to
limited partners - 97.5% 54,233 82,683 23,643 23,520
---------- ---------- ---------- ----------
$ 55,624 $ 84,803 $ 24,249 $ 24,123
========== ========== ========== ==========
Basic earnings per limited
partner unit $ .12 $ .16 $ .05 $ .05
========== ============ ========== ==========
Weighted average limited 522,116 522,116 522,116 522,166
partner units outstanding ========== ========= ========== ==========
See accompanying notes.
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
Statements of Partners' Capital
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
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 1,391 54,233 55,264 2,120 82,683 84,803
Distributions to partners - (92,743) (92,743) - (92,809) (92,809)
---------- ---------- ---------- ---------- ---------- ----------
Balance at end of period $ 58,388 $1,167,557 $1,225,945 $ 55,872 $1,255,035 $1,310,907
========== ========== ========== ========== ========== ==========
See accompanying notes.
COMMON GOAL HEALTH CARE PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
Statements of Cash Flows
(Unaudited)
SIX MONTHS ENDED
----------------
June 30, June 30,
2002 2001
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Cash flows from operating activities:
Net income $ 55,264 $ 84,803
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease (increase) in due from affiliates (4,777) 74,994
Decrease (increase) in interest receivable 4,381 (18,175)
Decrease (increase) in accounts receivable other (10,500)
Increase (decrease) in due to affiliates 15,542
Decrease (increase) in mortgage loans receivable 57,945
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Net cash provided by operating activities 55,228 146,664
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Cash flows from financing activities:
Distributions to limited partners (95,128) (86,825)
---------- ----------
Payments received on note receivable 23,661
Net cash used in financing activities (71,467) (86,825)
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Net increase in cash and cash equivalents: (16,239) 59,839
Cash and cash equivalents, beginning of period 472,242 431,399
---------- ----------
Cash and cash equivalents, end of period $ 456,003 $ 491,238
========== ==========
See accompanying notes.
COMMON GOAL HEALTH CARE
PENSION AND INCOME FUND L.P. II
(A Delaware Limited Partnership)
Notes to Financial Statements
(Unaudited)
March 31, 2002
(1) (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.
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 six
months ended June 30, 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's Loans as of March 31, 2002 were as follows:
SECOND MORTGAGE THIRD MORTGAGE
LOAN 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
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400,000 $ 850,000
========== ==========
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 June 30, 2002, the Borrowers were current in their
payments on the second and third mortgage loans. As of June 30, 2002, the
Partnership's mortgage loans had accrued $20,600 of interest payable for the
second quarter of 2002, which interest was due and payable in the third 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.
On August 5, 2002, the board of directors of the Managing General Partner,
acting in its capacity as General Partner of the Partnership, approved the
subdivision and release of 8.926 acres of land held as part of the collateral
for the Partnership's Second and Third Mortgage Loans made to St. Catherine's
Care Center of Findlay, Inc., which Loans are secured by the St. Catherine's of
Findlay Facility, including the underlying land. The first mortgage lender,
South Trust Bank (the "First Lender"), also approved the release of the
subdivided parcel.
Borrower and its affiliates intend to build 48 independent housing units
for the elderly, financed under the IRC Section 42 Tax Credit Program, on the
land. The Managing General Partner believes this subdivision and development
could enhance the value and stability of the nursing care facility, which is the
principal collateral for the two Mortgage Loans, and accordingly has consented
to the release. The Partnership will receive payment of $4,796.81 plus legal
fees for release of the parcel. The payment will be applied to loan principal
based on the relative amounts of the two Mortgage Loans. Such amount was
determined based on the formulation used by the First Lender to calculate the
value of the subdivided property for purposes of its release.
(3) PARTNERS' CAPITAL
-----------------
On April 22, 2002, the Partnership paid an accrued distribution of
$47,904 ($.09 per unit) to Limited Partner unit holders of record at
March 15, 2001. On April 13, 2002, the Partnership declared a
distribution of $44,839 ($.09 per unit) to Limited Partner unit
holders of record at June 30, 2002, which distribution was made on or
about July 15, 2002.
Since the Partnership's inception, the Limited Partner unit holders
have received $5,901,648 in cumulative distributions.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS.
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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 on January
11, 1992. The Partnership has 10 mortgage loans, consisting of second
and third positions secured by properties owned by affiliated
entities.
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 under
certain conditions. 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
$1,731,835 at June 30, 2002. The decrease of $39,583 resulted
primarily from cash distributions during the period ($92,743), being
partially offset by net earnings for the period ($60,323). As of June
30, 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.
All the second and third mortgage loans were current as to regular
interest as of June 30, 2002. As of June 30, 2002, the Partnership had
accrued $20,600 of interest payable for the first quarter for the
second and third mortgage loans, which interest is payable in the
third quarter of 2002. As of June 30, 2002, the Borrowers were current
in their payments on the second and third mortgage 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. As of June
30, 2002, the Partnership had been completely repaid all such late
interest and fees together with interest thereon calculated at a rate
of 7% per annum (interest payments of approximately $2,600).
The St. Catherine's Care Centers extended 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 the Partnership's mortgage
loans to April 20, 2004. 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 add third mortgage loans reflected
then current market rates that the General Partner believed to 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 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 "Lessee"). 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 until its
remaining loans mature in 2004.
During the six months ended June 30, 2002 and 2001, the Partnership
had net earnings of $55,624 and $84,805, based on total revenue of
$91,319 and $130,458 and total expenses of $35,695 and $45,655. For
the six months ended June 30, 2002 and 2001, the net earnings per
limited partner unit were $.12 and $.16 respectively.
The decrease in net earnings of $28,679 for the six months ended June
30, 2002, compared to the six months ended June 30, 2001, is due to a
decrease in interest income of $30,704 resulting from the lower
interest rate on the loans refinanced in April 2001 and on cash
balances, and the absence of income from late fees during the quarter
ended June 30, 2002.
The Partnership does not presently plan to make additional mortgage
loans and accordingly expects to liquidate once the mortgage loans
mature in 2004.
Because of recent poor financial performance of the St. Catherine's
Care Centers of Findlay, Fostoria and Washington Court House
facilities which are leased by the Borrowers to CHS Northwest, the
Managing General Partner has begun requiring the Borrowers to provide
the consolidated financial statements of the tenant as well. Based on
the Managing General Partner's review, CHS Northwest, the tenant,
appears to have the financial ability to continue fulfilling the
requirements of the leases; however, the Managing General Partner will
continue to monitor the tenant's financial condition as well as the
financial condition of the facilities. The tenant has made all lease
payments to the Borrowers, who in turn are current on the Mortgage
Loans held by the Partnership.
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
99.1 Certification of CEO and CFO pursuant to 18
U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
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: August 14, 2002 /s/Albert E. Jenkins, III
----------------------------------
Albert E. Jenkins, III
President, Chief Executive Officer
and Acting Chief Financial Officer
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: August 14, 2002
/s/ Albert E. Jenkins, III
---------------------------------
Albert E. Jenkins, III
President, Chief Executive Officer
and Acting Chief Financial Officer