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 EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES 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.)
400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 770-698-9040
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
THERE ARE NO EXHIBITS.
PAGE ONE OF 11 PAGES.
<PAGE>
PART I. FINANCIAL INFORMATION
CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1998 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,554,290 $ 1,147,310
Accounts receivable, net of
allowance for doubtful accounts
of $19,674 and $19,035 550,931 793,554
Prepaid expenses and other 14,858 18,964
------------ ------------
Total current assets 2,120,079 1,959,828
------------ ------------
Property and equipment
Land 178,609 178,609
Buildings and improvements 6,741,397 6,733,131
Equipment and furnishings 827,433 808,245
------------ ------------
7,747,439 7,719,985
------------ ------------
Accumulated depreciation
and amortization (4,257,418) (4,142,935)
------------ ------------
Net property and equipment 3,486,825 3,577,050
------------ ------------
Other
Restricted escrows and other deposits 363,252 456,992
Deferred loan costs, net of
accumulated amortization
of $12,777 and $12,516 19,535 19,794
------------ ------------
Total other assets 382,787 476,786
------------ ------------
$ 5,992,887 $ 6,013,664
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 81,959 $ 75,836
Accounts payable 327,116 242,484
Accrued expenses 409,633 375,411
Accrued management fees 394,656 440,167
Other liabilities 201,817 69,931
------------ ------------
Total current liabilities 1,415,181 1,203,829
------------ ------------
Long-term obligations,
less current maturities 4,105,377 4,124,298
------------ ------------
Total liabilities 5,520,558 5,328,127
------------ ------------
Partners' equity (deficit):
Limited partners 633,003 849,683
General partners (160,674) (164,146)
------------ ------------
Total partners' deficit 472,329 685,537
------------ ------------
$ 5,992,887 $ 6,013,664
============ ============
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
1998 1997
----------- -----------
Revenue:
Operating revenues $ 2,036,150 $ 1,728,212
Interest income 3,513 9,604
----------- -----------
Total revenue 2,039,663 1,737,816
----------- -----------
Expenses:
Operating expenses 1,734,430 1,557,297
Depreciation & amortization 114,743 98,211
Interest 78,840 80,146
Partnership administration costs 24,858 15,867
----------- -----------
Total expenses 1,952,871 1,751,521
----------- -----------
Net income (loss) $ 86,792 $ (13,705)
=========== ===========
Net income (loss) per L.P. unit $ 5.55 $ (0.88)
=========== ===========
L.P. units outstanding 15,000 15,000
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
1998 1997
----------- -----------
Operating Activities:
Cash received from residents and
government agencies $ 2,278,773 $ 1,671,874
Cash paid to suppliers and employees (1,397,416) (1,606,125)
Interest received 3,513 9,604
Interest paid (78,840) (80,146)
Property taxes paid (58,798) (30,119)
----------- -----------
Cash provided by (used in)
operating activities 747,232 (34,912)
----------- -----------
Investing Activities:
Additions to property and equipment (27,454) (227,160)
----------- -----------
Financing Activities:
Principal payments on long-term debt (12,798) (9,701)
Distributions (300,000) (200,100)
----------- -----------
Cash used in financing activities (312,798) (209,801)
----------- -----------
Net (decrease) in cash
and cash equivalents 406,980 (471,873)
Cash and cash equivalents, beginning of period 1,147,310 1,339,758
----------- -----------
Cash and cash equivalents, end of period $ 1,554,290 $ 867,885
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
1998 1997
---------- ----------
Reconciliation of Net Income (Loss) to cash
Provided by Operating Activities:
Net income (loss) $ 86,792 $ (13,705)
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Depreciation and amortization 114,742 98,211
Changes in assets and liabilities:
Accounts receivable 242,623 (56,338)
Restricted escrows 93,740 2,619
Other current assets 4,106 13,108
Accounts payable and
accrued liabilities 205,229 (78,807)
---------- ----------
Cash provided by operating
activities $ 747,232 (34,912)
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
(UNAUDITED)
Total
Partners'
Limited General Deficit
---------- ---------- ----------
Balance, at December 31, 1996 $ 412,271 $(190,709) $ 221,562
Net loss (13,157) (548) (13,705)
Distribution (200,100) - (200,100)
---------- ---------- ----------
Balance, at March 31, 1997 $ 199,014 $(191,257) $ 7,757
========== ========== ==========
Balance, at December 31, 1997 $ 849,683 $(164,146) $ 685,537
Net income 83,320 3,472 86,792
Distribution (300,000) - (300,000)
--------- --------- ---------
Balance, at March 31, 1998 $ 633,003 $(160,674) $ 472,329
========== ========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED RESOURCES HEALTH CARE FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 Partnership's financial position and
operating results for the interim periods. The results of operations for the
three months ended March 31, 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 WelCare Service Corporation-II (the
"Managing General Partner"), at 400 Perimeter Center Terrace, Suite 650,
Atlanta, Georgia 30346.
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:
Three Months Ended
March 31,
1998 1997
------- -------
Charged to costs and expenses:
Property management and oversight
management fees.................................. $20,417 $6,795
Financial accounting, data processing,
tax reporting, legal and compliance,
investor relations and supervision
of outside services.............................. $18,203 $15,867
<PAGE>
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 March 31, 1998, the Partnership had three general partners (the "General
Partners"), Consolidated Associates II, ("CA-II") WelCare Consolidated Resources
Corporation of America, serving as the corporate general partner ("WCRCA" or the
"Corporate General Partner") and WelCare Service Corporation-II as managing
general partner ("WSC-II" or the "Managing General Partner").
Results of Operations
Revenues:
Operating revenue showed an increase of $307,938 for the quarter ended March 31,
1998, compared to the same period for the prior year. This 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 both the nursing and retirement
facilities were slightly higher in the current period as compared to the prior
year.
Expenses:
Operating expenses showed an increase of $177,131 for the quarter ended March
31, 1998, as compared to the same period for the prior year. This increase is
primarily due to increased salary and general costs due to increased census at
the Partnership's nursing and retirement facilities.
Liquidity and Capital Resources:
At March 31, 1998, the Partnership held cash and cash equivalents of $1,554,290,
an increase of $406,980 from December 31, 1997. This increase in cash is due
primarily to the collection of approximately $450,000 in prior year Medicare
settlement receivables for the nursing facility during the first quarter of
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.
As of March 31, 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.
On February 15, 1998, the Partnership distributed $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 17% of its revenues from Medicare at its nursing facility.
<PAGE>
Part II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
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: May 20, 1998 By: /s/J. Stephen Eaton
J. Stephen Eaton
President
Date: May 20, 1998 By: /s/Alan C. Dahl
Alan C. Dahl
Vice President and Principal
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE MARCH 31, 1998 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,554,290
<SECURITIES> 0
<RECEIVABLES> 569,966
<ALLOWANCES> 19,674
<INVENTORY> 0
<CURRENT-ASSETS> 2,120,079
<PP&E> 7,747,439
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,992,887
<CURRENT-LIABILITIES> 1,415,181
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 472,329
<TOTAL-LIABILITY-AND-EQUITY> 5,992,887
<SALES> 2,036,150
<TOTAL-REVENUES> 2,039,663
<CGS> 1,849,173
<TOTAL-COSTS> 1,952,871
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,840
<INCOME-PRETAX> 86,792
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,792
<EPS-PRIMARY> 5.55
<EPS-DILUTED> 5.55
</TABLE>
