<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ___________ TO ___________
COMMISSION FILE NUMBER 0-13415
CONSOLIDATED RESOURCES HEALTH CARE FUND II
(Exact name of registrant as specified in its charter)
Georgia 58-1542125
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) (Identification No.)
1175 Peachtree Street, Suite 710, Atlanta, GA 31106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 873-1919
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes x No
<PAGE> 2
PART I. FINANCIAL INFORMATION
CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,567,206 $ 257,310
Accounts receivable, net of allowance for doubtful accounts
of $11,307 and $19,035 397,747 793,554
Due from related party -- 890,000
Prepaid expenses and other 89,894 18,964
----------- -----------
Total current assets 2,054,847 1,959,828
=========== ===========
Property and equipment
Land 178,609 178,609
Buildings and improvements 6,802,664 6,733,131
Equipment and furnishings 829,931 808,245
----------- -----------
7,811,204 7,719,985
----------- -----------
Accumulated depreciation and amortization (4,373,589) (4,142,935)
----------- -----------
Net property and equipment 3,437,615 3,577,050
----------- -----------
Other
Restricted escrows and other deposits 388,841 456,922
Deferred loan costs, net of accumulated amortization of
$13,035 and $12,516 19,275 19,794
----------- -----------
Total other assets 408,116 476,786
----------- -----------
$ 5,900,578 $ 6,013,664
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 2
<PAGE> 3
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 81,696 $ 75,836
Accounts payable 174,181 242,484
Accrued expenses 447,483 375,411
Accrued management fees 394,918 440,167
Other liabilities 204,931 69,931
----------- -----------
Total current liabilities 1,303,209 1,203,829
=========== ===========
Long-term obligations, less current maturities 4,086,093 4,124,298
----------- -----------
Total liabilities 5,389,302 5,328,127
----------- -----------
Partners' equity (deficit):
Limited partners 670,392 849,683
General partners (159,116) (164,146)
----------- -----------
Total partners' equity 511,276 685,537
----------- -----------
$ 5,900,578 $ 6,013,664
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE> 4
CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Operating revenues $1,796,329 $1,925,960 $3,832,479 $3,654,172
Interest income 7,457 8,834 10,970 18,438
---------- ---------- ---------- ----------
Total revenue 1,803,786 1,934,794 3,843,449 3,672,610
---------- ---------- ---------- ----------
Expenses:
Operating expenses 1,538,499 1,677,440 3,272,929 3,234,737
Depreciation & amortization 116,430 106,190 231,173 204,401
Interest 78,458 80,131 157,298 160,277
Partnership administration costs 31,452 13,048 56,310 28,915
---------- ---------- ---------- ----------
Total expenses 1,764,839 1,876,809 3,717,710 3,628,330
---------- ---------- ---------- ----------
Net income $ 38,947 $ 57,985 $ 125,739 $ 44,280
========== ========== ========== ==========
Net income per L.P. unit $ 2.49 $ 3.71 $ 8.05 $ 2.83
========== ========== ========== ==========
L.P. units outstanding 15,000 15,000 15,000 15,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE> 5
CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
----------- -----------
<S> <C> <C>
Operating Activities:
Cash received from residents and government agencies $ 4,296,437 $ 3,611,320
Cash paid to suppliers and employees (3,243,410) (3,166,430)
Interest received 10,970 18,438
Interest paid (157,298) (160,277)
Property taxes paid (63,239) (30,119)
----------- -----------
Cash provided by operating activities 843,460 272,932
----------- -----------
Investing Activities:
Additions to property and equipment (91,219) (372,605)
Financing Activities:
Principal payments on long-term debt (32,345) (28,109)
Due from related party 890,000 --
Distributions (300,000) (200,100)
----------- -----------
Cash used in financing activities 557,655 (228,509)
=========== ===========
Net (decrease) in cash and cash equivalents 1,309,896 (328,182)
Cash and cash equivalents, beginning of period 257,310 1,339,758
----------- -----------
Cash and cash equivalents, end of period $ 1,567,206 $ 1,011,577
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE> 6
CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
--------- ---------
<S> <C> <C>
Reconciliation of Net Income to cash
Provided by Operating Activities:
Net income $ 125,739 $ 44,280
Adjustments to reconcile net income
to cash provide by (used in)
operating activities:
Depreciation and amortization 231,173 204,401
Changes in assets and liabilities:
Accounts receivable 395,807 (42,852)
Restricted escrows 68,151 (34,308)
Other current assets (70,930) 13,082
Accounts payable and
accrued liabilities 93,520 88,329
--------- ---------
Cash provided by operating activities $ 843,460 $ 272,932
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
Page 6
<PAGE> 7
CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Partners'
Limited General Deficit
--------- --------- --------
<S> <C> <C> <C>
Balance, at December 31, 1996 $ 412,271 $(190,709) $221,562
Net loss 42,509 1,771 44,280
Distribution (200,100) - (200,100)
--------- --------- --------
Balance, at June 30, 1997 $ 254,680 $(188,938) $ 65,742
========= ========= ========
Balance at December 31, 1997 $ 849,683 $(164,146) $685,537
Net income 120,709 5,030 125,739
Distribution (300,000) - (300,000)
--------- --------- --------
Balance, at June 30, 1998 $ 670,392 $(159,116) $511,276
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 7
<PAGE> 8
CONSOLIDATED RESOURCES HEALTH CARE FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
NOTE 1.
The financial statements are unaudited and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results of Consolidated Resources Health Care Fund II (the "Partnership") for
the interim periods. The results of operations for the periods ended June 30,
1998, are not necessarily indicative of the results to be expected for the year
ending December 31, 1998.
NOTE 2.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto contained in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1997,
as filed with the Securities and Exchange Commission, a copy of which is
available upon request by writing to Camden Real Estate Company at Post Office
Box 8779, Atlanta, Georgia 31106.
NOTE 3.
A summary of compensation paid to or accrued for the benefit of the
Partnership's general partners and their affiliates and amounts reimbursed for
costs incurred by these parties on the behalf of the Partnership are as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
---- ----
<S> <C> <C>
Charged to costs and expenses:
Property management and oversight
management fees.................................................. $38,911 $36,541
Financial accounting, data processing,
tax reporting, legal and compliance,
investor relations and supervision
of outside services.............................................. $36,406 $28,915
</TABLE>
Page 8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained in this Management Discussion and Analysis are not
based on historical facts, but are forward-looking statements that are based
upon numerous assumptions about future conditions that may ultimately prove to
be inaccurate. Actual events and results may materially differ from anticipated
results described in such statements. The Partnership's ability to achieve such
results is subject to certain risks and uncertainties. Such risks and
uncertainties include, but are not limited to, changes in healthcare
reimbursement systems and rates, the availability of capital and financing, and
other factors affecting the Partnership's business that may be beyond its
control.
At June 30, 1998, the Partnership had three general partners (the "General
Partners"), Consolidated Associates II, ("CA-II") WelCare Consolidated Resources
Corporation of America ("WCRCA") and WelCare Service Corporation-II as managing
general partner ("WSC-II" or the "Managing General Partner"). On July 16, 1998,
WCRCA assigned all of its right, title and interest in and to its general
partner interest in the Partnership to its affiliate, WSC-II. On July 22, 1998,
an Amendment to Amended and Restated Agreement and Certificate of Limited
Partnership of the Partnership was filed with the Clerk of the Superior Court of
DeKalb County, Georgia reflecting the withdrawal of WCRCA from the Partnership
and certain other matters. On July 23, 1998, the sole shareholder of the
Managing General Partner sold all of the issued and outstanding shares of common
stock of the Managing General Partner to an unrelated third party.
RESULTS OF OPERATIONS
Revenues:
Operating revenue decreased by $129,630 for the quarter ended June 30, 1998, but
showed an increase of $178,307 for the six months ended June 30, 1998, compared
to the same periods for the prior year. The decrease during the last quarter was
primarily attributable to a slight decrease in occupied units and a shift in
Medicare revenues. The six month increase is primarily due to the inclusion of
approximately $120,000 in cost report settlements related to prior periods and
increased rates for all payor categories at the Partnership's nursing facility.
Census at the nursing facility was stable in the current period with the prior
year. There was a slight decline in census at the retirement facility in the
current period as compared to the prior year.
Expenses:
Operating expenses decreased $138,941 for the quarter ended June 30, 1998, but
increased by $38,192 during the six months ended June 30, 1998, as compared to
the same period for the prior year. This increase is primarily due to increased
salary and general costs.
Liquidity and Capital Resources:
At June 30, 1998, the Partnership held cash and cash equivalents of $1,567,206,
an increase of $602,916 from March 31, 1998. The current cash balance will be
necessary to meet the Partnership's current obligations and for operating
reserves. In addition, cash balances maintained at the two Partnership
facilities will have to be maintained in accordance with operating reserves
established by HUD.
The Partnership's two remaining facilities produced sufficient revenues to meet
their operating and debt service obligations as well as provide additional cash
flow to supplement cash reserves. These facilities should continue to produce
positive cash flow in 1998.
Page 9
<PAGE> 10
As of June 30, 1998, the Partnership was not obligated to perform any major
capital expenditures or renovations. The Managing General Partner anticipates
that any repairs, maintenance, or capital expenditures will be financed with
cash reserves, HUD replacement reserves and cash flow from operations.
The Partnership did not make a distribution to the Limited Partners during the
quarter ended June 30, 1998. During the first quarter of 1998, the Partnership
had made a distribution of $300,000 to the Limited Partners. The Managing
General Partner anticipates the annual distributions from operating cash flow
will continue in future periods. However, the Partnership's ability to make
distributions may be limited by HUD's requirements for surplus cash at the
facility level.
HEALTH CARE REFORM
The Balanced Budget Act of 1997, (the "Act"), enacted in August 1997, has
targeted the Medicare program for reductions in spending growth of approximately
$9.5 billion for skilled nursing facilities over the next five years, primarily
through the implementation of a Medicare prospective payment system for skilled
services. The Medicare prospective payment rate, which reimburses for routine
service, ancillary and capital costs, will initially be a blended rate based on
(i) a facility-specific payment rate derived from each facility's 1995 cost
report, adjusted by an inflation factor and (ii) a federal per diem rate derived
from all hospital-based and freestanding (skilled nursing facility) 1995 cost
reports, adjusted to remove geographic, wage-related, inflationary and case mix
differences between facilities. The blended rate will be further adjusted by a
facility-specific case mix (acuity) index. The exact amount of these adjustments
has not yet been released by the Secretary of the Department of Health and Human
Services.
The Partnership believes that, due to the cost structure at its skilled nursing
facility in 1995 and its facility's costs as compared to other facilities in its
market, the overall reimbursement rate should not be lower than its current rate
and could possibly be higher. However, until the rate is ultimately determined
under the prospective payment system, the Partnership will not be able to
determine the exact nature or long term financial impact of the legislative
changes. The Partnership can give no assurance that payments under such programs
in the future will remain at a level comparable to the present level or
increase, and decreases in the level of payments could have a material adverse
effect on the Partnership. During the first quarter of 1998, the Partnership
derived 13% of its revenues from Medicare at its nursing facility.
Page 10
<PAGE> 11
Part II - OTHER INFORMATION
ITEM 6. Exhibits and reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Exhibits
3.3 Amendment to Amended and Restated Agreement and Certificate of Limited Partnership
of Consolidated Resources Health Care Fund II.
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None
</TABLE>
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.
CONSOLIDATED RESOURCES HEALTH CARE FUND II
By: WELCARE SERVICE CORPORATION - II
Managing General Partner
Date: August 18, 1998 By: /s/ John F. McMullan
--------------------------------
John F. McMullan
Chief Financial Officer
Date: August 18, 1998 By: /s/ Marilyn M. McMullan
--------------------------------
Assistant Secretary
Page 11
<PAGE> 1
EXHIBIT 3.3
AMENDMENT TO AMENDED AND RESTATED AGREEMENT
AND CERTIFICATE OF LIMITED PARTNERSHIP
of
CONSOLIDATED RESOURCES HEALTH CARE FUND II
THIS AMENDMENT (this "Amendment") to the Amended and Restated Agreement
of Limited Partnership (as amended to date, the "Partnership Agreement") of
Consolidated Resources Health Care Fund II, a Georgia limited partnership (the
"Partnership"), is made, signed and sworn to as of this 16th day of July 1998
among WelCare Service Corporation - II ("WSC"), as managing general partner of
the Partnership, for itself and on behalf of the limited partners of the
Partnership (the "Limited Partners"), WelCare Consolidated Resources Corporation
of America, a Nevada corporation and the corporate general partner of the
Partnership ("WCRCA"), and Consolidated Associates II, a Georgia general
partnership and the general partner of the Partnership ("CA") for the purpose of
amending the Partnership Agreement recorded in the office of the Clerk of
Superior Court of Dekalb County, in accordance with the provisions of the
Georgia Uniform Limited Partnership Act.
WITNESSETH:
WHEREAS, WCRCA has assigned its general partner interest in the
Partnership to WSC and WSC has accepted such assignment and agreed to assume
WCRCA's obligations with respect to the Partnership;
WHEREAS, Section 11.06 of the Partnership Agreement provides that a
general partner may transfer its interest without the consent of the Limited
Partners to a person or persons, entity or entities, controlling or controlled
by or under common control with such general partner who will agree to assume
all obligations of such general partner with respect to the Partnership;
WHEREAS, each of WSC and WCRCA is a wholly-owned subsidiary of
Consolidated Partners Corporation, a Georgia corporation ("Parent");
WHEREAS, WCRCA desires to withdraw as a general partner of the
Partnership; and
WHEREAS, the parties hereto desire to amend the Partnership Agreement
to reflect the withdrawal of WCRCA from the Partnership and certain related
matters.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. The Partnership Agreement is hereby amended to reflect the
withdrawal of WCRCA as a general partner of the Partnership.
<PAGE> 2
2. Section 1.03 or the Partnership Agreement is hereby amended to
read in its entirety: "The principal office of the Partnership shall be located
at 3570 Keith Street, N.W., Cleveland, Tennessee 37312. The General Partners may
from time to time change the Partnership's principal place of business to any
other location by giving written notice of such change to the Limited Partners."
3. Section 1.076 of the Partnership Agreement is hereby amended
to read in its entirety: "'General Partner' or 'General Partners' shall mean
WelCare Service Corporation - II or Consolidated Associates II, or any Person or
Persons admitted to the Partnership as a General Partner pursuant to the
provisions of this Agreement."
4. Section 1.0712 shall be amended and restated as follows:
"'Partner' shall mean any General Partner or Limited Partner."
5. Each reference in the Partnership Agreement to "the General
Partners" or "each General Partner" shall hereafter be deemed to refer to WSC
and/or CA.
6. Except as amended pursuant to the terms of this Amendment, the
Partnership Agreement shall remain in full force and effect in accordance with
its terms.
7. If the business of the Partnership is conducted in
jurisdictions in addition to the State of Georgia, then the parties agree that
this Amendment shall exist under the laws of each such jurisdiction in which
such business is actually conducted to the extent that it is necessary in order
to do business in each such jurisdiction; otherwise the internal laws of the
State of Georgia shall govern this Amendment.
8. All of the terms, provisions and agreements herein contained
shall be binding upon and inure to the benefit of the successors and assigns of
the respective parties hereto; provided, however, that any such assignment is
subject to the restrictions with respect thereto set forth in the Partnership
Agreement.
9. This Amendment may be executed in any number of counterparts,
each of which will be deemed an original, but all of which together will
constitute one and the same instrument.
<PAGE> 3
IN WITNESS WHEREOF, the parties have sworn to and executed this
Amendment as of the date first written above.
WELCARE SERVICE CORPORATION - II
By:
- ---------------------------- ---------------------------------
Witness
- ----------------------------
Notary Public
WELCARE CONSOLIDATED RESOURCES
CORPORATION OF AMERICA
By:
- ---------------------------- ---------------------------------
Witness
- ----------------------------
Notary Public
CONSOLIDATED ASSOCIATES II
By: WelCare Consolidated Resources
Corporation of America, Managing
Partner
By:
- ---------------------------- ---------------------------------
Witness
- ----------------------------
Notary Public
All Limited Partners admitted as Limited
Partners to the Partnership pursuant to
Powers of Attorney executed in favor
of, and delivered to, each of the General
Partners.
By: WelCare Service Corporation - II,
Managing General Partner
By:
- ---------------------------- ---------------------------------
Witness
- ----------------------------
Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE JUNE 30, 1998 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,567,206
<SECURITIES> 0
<RECEIVABLES> 397,747
<ALLOWANCES> 11,307
<INVENTORY> 0
<CURRENT-ASSETS> 2,054,847
<PP&E> 7,811,204
<DEPRECIATION> 4,373,589
<TOTAL-ASSETS> 5,900,578
<CURRENT-LIABILITIES> 1,303,209
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 511,276
<TOTAL-LIABILITY-AND-EQUITY> 5,900,578
<SALES> 3,832,479
<TOTAL-REVENUES> 3,843,449
<CGS> 3,504,102
<TOTAL-COSTS> 3,717,710
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157,298
<INCOME-PRETAX> 125,739
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,739
<EPS-PRIMARY> 8.05
<EPS-DILUTED> 8.05
</TABLE>
