<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
For annual and transitions reports pursuant to sections 13 or 15 (d) of the
Securities Exchange Act of 1934.
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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)
<TABLE>
<S> <C>
Georgia 58-1542125
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
1175 Peachtree Street, Suite 710, Atlanta, Georgia 31106
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 404-873-1919
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units
</TABLE>
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Of the registrant's 15,000 Limited Partnership Units, 14,990 are held by
non-affiliates. The aggregate market value of units held by non-affiliates is
not determinable since there is no public trading market for Limited Partnership
Units and transfers of units are subject to certain restrictions.
See Index to Exhibits on pages 10 -11.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Consolidated Resources Health Care Fund II (the "Partnership") was organized on
October 31, 1983, as a Limited Partnership under the provisions of the Georgia
Uniform Limited Partnership Act.
At December 31, 1998, the Partnership had two general partners (the "General
Partners"), Consolidated Associates II ("CA-II") and WelCare Service
Corporation-II as managing general partner ("WSC-II" or the "Managing General
Partner").
On December 7, 1983, the Partnership offered for sale publicly $15,000,000 of
Limited Partnership Units. The Limited Partnership Units represent equity
interests in the Partnership and entitle the holders thereof (the "Limited
Partners") to participate in certain allocations and distributions of the
Partnership.
The Partnership's primary business and only industry segment is to own, operate
and ultimately dispose of a diversified portfolio of health care related real
properties for the benefit of its Limited Partners. At December 31, 1998 and
1997, the Partnership owned and operated two health care facilities, a nursing
home and a retirement center, both located in Columbus, Ohio.
Effective March 1, 1991, the Partnership's nursing home was managed by Life Care
Centers of America, Inc. ("LCCA") and the retirement center was managed by
American Lifestyles, Inc. ("ALI"), a division of LCCA. LCCA is a privately-owned
corporation which manages congregate care facilities throughout the United
States. LCCA and ALI receive a management fee equal to 5% of gross revenues of
the respective facilities. An affiliate of the Managing General Partner provides
oversight management services for these facilities and receives an oversight
management fee of 1% of gross revenues.
As of December 31, 1998, the Partnership employed approximately 134 persons,
including administrative, nursing, dietary, social services and maintenance
personnel.
The services provided at the Partnership's nursing home consist of long-term
nursing care. Nursing care consists of 24 hour medical services prescribed by
the resident's physician as well as assistance or supervision with daily
activities such as dressing, grooming, bathing, medication and dietary needs.
The retirement center owned by the Partnership provides apartment living for
ambulatory senior citizens who do not require assistance in their daily
activities.
The nursing home is certified to receive benefits under joint federal and state
funded programs administered by the State of Ohio to provide medical assistance
to the indigent, known generally as the "Medicaid" program. Benefits under the
Federal Health Insurance for the Aged Act ("Medicare") are for skilled care only
in those facilities which are certified for the program. The nursing home is
certified under the Medicare program.
Medicaid reimbursement formulas vary by state and are established in accordance
with Federal guidelines. Typically, Medicaid provides for reimbursement for
nursing home care of an all-inclusive nature up to specified limits based on
historical costs, with adjustments for inflation. Federal law requires that
Medicaid reimbursement rates be reasonable and adequate to meet the costs that
must be incurred by efficiently and economically operated facilities in order to
provide care and services in conformity with applicable laws, regulations and
quality and safety standards. Medicaid payments are generally set prospectively
for each facility.
The Medicare and Medicaid programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy and determinations by
intermediaries, and to governmental funding restrictions. Each of these factors
may materially increase or decrease program payments to long-term care
facilities and could adversely affect the operations of the Partnership's
nursing facility. In the operation and sale of properties, the Partnership
competes with a number of individuals and entities, including large, national
nursing home chains and small, locally owned geriatric facilities. Some
competing operators have greater financial resources than the Partnership or may
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<PAGE> 3
operate on a nonprofit basis or as charitable organizations. The Partnership
believes that the quality of care provided, the reputation and physical
appearance of facilities and, in the case of private pay patients, charges for
services, are significant competitive factors which add to the success of its
facilities. There is limited, if any, competition in price with respect to
Medicaid and Medicare patients since revenues for services to such patients are
strictly controlled and based on fixed rates and cost reimbursement principles.
In light of these factors, the Partnership seeks to meet competition by
improving the appearances of and the quality of services provided at its
facilities, establishing a reputation within the local medical communities for
providing competent care services and continually evaluating the needs of the
community and services offered by other health care providers.
All patient and resident revenue derived by the retirement facility is received
from private sources. The nursing facility, however, receives patient revenue
from both the public and private sector. The following table sets forth
information regarding the average daily census and sources of patient and
resident revenues at the Partnership's nursing facility:
<TABLE>
<CAPTION>
Revenues for
Average Daily Census for Year Ended Percentages
Year Ended December 31, of Total
December 31, 1998 1998 Revenues
----------------- ---- -------
Number of Percent of Total
Patients/Residents Patients/Residents
<S> <C> <C> <C> <C>
Medicaid 44.9 49.9% $1,974,931 32.4%
Private Pay 29.6 33.0% 1,594,240 26.1%
Medicare 11.8 13.2% 2,137,788 35.0%
HMO/Other 3.5 3.9% 309,596 5.06%
Miscellaneous N/A N/A 88,240 1.44%
---- ---- ---------- -----
Total 89.8 100% $6,104,795 100%
</TABLE>
Because of a changing census mix (i.e. private pay vs. government reimbursed
patients), the occupancy required for a nursing facility to achieve an operating
break-even point cannot be determined precisely. Generally, a greater ratio of
Medicaid patients will require a higher occupancy to reach a break-even point.
On the other hand, a high Medicare census can significantly reduce the
break-even point due to a higher reimbursement rate.
The retirement center is much like an apartment complex with additional services
provided to attract the elderly including limited transportation, housekeeping
and food services. The Partnership's retirement center has a net cash flow
break-even occupancy ranging from 75% to 80%. During 1998, the facility only had
an occupancy rate of 73%; therefore, it did not meet its break-even occupancy
level.
ITEM 2. PROPERTIES
The following table sets forth the investment portfolio of the Partnership at
December 31, 1998. The buildings of the projects and the land on which they are
located are beneficially owned by the Partnership in fee, subject in each case
to a first deed of trust as set forth more fully in Item 8, Note 2.
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<PAGE> 4
Properties (dollars in 000's)
-----------------------------
<TABLE>
<CAPTION>
Net Occupancy
Secured Acquisition Book Rate in Date
Property Debt Cost Value(1) 1998 Acquired
<S> <C> <C> <C> <C> <C>
Mayfair Village
Nursing Care Center $1,531 $4,774 $1,201 90% February 1985
Columbus, OH
100 Licensed
Nursing Home
Beds
Mayfair Retirement $2,593 $4,824 $2,114 73% February 1985
Center ------ ------ ------
Columbus, OH
91 Units
Total $4,124 $9,598 $3,315
====== ====== ======
</TABLE>
(1) A provision was made prior to 1991 to write down each facility to their
estimated net realizable value or estimated fair value at the time of
the write-down as determined by WelCare Consolidated Resources
Corporation of America, the corporate general partner of the
Partnership, at the time of this write-down. (See Item 8, Note 4).
These values reflect this write-down.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1998, the Partnership did not have any pending legal
proceedings that separately, or in the aggregate, if adversely determined, would
have a material adverse effect on the Partnership. The Partnership may, from
time to time, be a party to litigation or administrative proceedings which arise
in the normal course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND
SECURITY HOLDER MATTERS
(A) No market for Limited Partnership Units exists nor is one expected to
develop.
(B) Title of Class Number of Record Unit Holders
-------------- -----------------------------
Limited Partner Units 1,390 as of March 31, 1999
(C) There were total distributions of $600,000 paid to the Limited Partners
in 1998. Cumulative distributions paid to the Limited Partners as of
December 31, 1998, were $3,538,203. Future distributions are dependent
on the Partnership's ability to meet its ongoing obligations. There
have been no distributions to the General Partners. See Liquidity and
Capital Resources section of Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations," for a
discussion of distributions.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth a summary of selected financial data for the
Partnership. This summary should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Partnership and
notes thereto appearing in Item 8.
<TABLE>
<CAPTION>
Years Ended December 31, (dollars in 000's, except per unit figures)
--------------------------------------------------------------------
Statements of
Operations 1998 1997 1996 1995 1994
---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenue $ 7,495 $8,304 $7,189 $6,623 $6,091
Income (Loss) before (168) 664 279 175 185
extraordinary gain
Net income (Loss) (168) 664 279 5,827 185
Income (Loss) before (10.74) 42.50 17.84 11.21 11.85
extraordinary gain per
weighted average
Limited Partnership Unit
Net income (Loss) per (10.74) 42.50 17.84 372.93 11.85
weighted average
Limited Partnership Unit
Distribution paid per 40.00 13.34 10.00 10.00 --
weighted average
Limited Partnership
Unit
</TABLE>
<TABLE>
<CAPTION>
At December 31, (dollars in 000's)
--------------------------------------------------------
Balance Sheets 1998 1997 1996 1995 1994
- -------------------------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Property and equipment, $3,315 $3,577 $3,440 $3,564 $ 3,825
net
Total assets $5,228 6,014 5,499 5,592 5,980
Long-term debt 4,045 4,124 4,206 4,261 4,326
obligations, less current
maturities
Partners' equity (deficit) (82) 686 222 93 (5,584)
- ----------
</TABLE>
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<PAGE> 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Certain statements contained in this Management's 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.
RESULTS OF OPERATIONS
REVENUE:
1998 compared to 1997
Operating revenues decreased $809,834 in 1998 as compared to 1997. The decrease
was primarily attributable to a decrease in occupied units and a shift in
Medicare revenues. Census at the nursing facility remained stable during the
year ended December 31, 1998; however, the nursing facility did experience a
decline in the number of Medicare patients. This decline is primarily due to a
new rehabilitation/subacute facility that directly competes with the nursing
facility for Medicare and managed care patients. There was a continuing decline
in census at the retirement facility during the last nine months of the year
ended December 31, 1998.
1997 compared to 1996
Operating revenues increased $1,115,026 in 1997 as compared to 1996. The
increase was due primarily to the recognition of approximately $550,000 in
additional Medicare revenues generated by Routine Cost Limit exception
settlements related to 1995 and 1996 cost report years for the Partnership's
nursing facility. The remaining balance of the revenue increase was attributable
to favorable increases in Medicaid and Medicare rates at the nursing facility,
along with an increase in rates at the retirement facility following the
completion of a renovation project initiated in 1996.
EXPENSES:
1998 compared to 1997
Operating expenses decreased $30,900 in 1998 as compared to 1997. The slight
decrease was primarily attributable to reductions in staffing at the nursing
center in preparation for the implementation of the Medicare prospective payment
system (the "PPS") on January 1, 1999 and in response to the lower Medicare
census.
1997 compared to 1996
Operating expenses increased $618,452 in 1997 as compared to 1996. The increase
was due primarily to a shift to higher acuity patients which require higher cost
ancillary services at the Partnership's nursing facility.
NET INCOME (LOSS):
1998 compared to 1997
For the fiscal year ended December 31, 1998, the Partnership suffered a net loss
of $167,821, whereas for the fiscal year ended December 31, 1997, the
Partnership had a net income of $664,075. The net loss in 1998 was primarily
attributable to a decrease in operating revenue of $809,834. The total operating
costs and expenses increased
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slightly from $7,672,553 as of December 31, 1997 to $7,697,784 as of December
31, 1998. This slight increase was primarily due to increases in management and
oversight fees and real estate taxes.
1997 compared to 1996
The Partnership's net income increased to $664,075 for the fiscal year ended
December 31, 1997 from $278,712 for the fiscal year ended December 31, 1996.
This increase in net income of 138% was primarily attributable to the increase
in operating revenue during 1997. The operating revenue for the fiscal year
ended December 31, 1996 was $7,189,448, as compared to $8,304,474 for the fiscal
year ended December 31,1997, an increase of $1,115,026. The total operating
costs and expenses increased to $7,672,553 for the fiscal year ended December
31, 1997 from $6,939,851 for the fiscal year ended December 31, 1996. This
increase in operating costs and expenses was primarily due to increases in
operating expenses, depreciation and amortization and real estate taxes.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Partnership held cash and cash equivalents of
$931,079, an increase of $673,769 from the amount held at December 31, 1997. The
cash balance, which is held in accounts controlled by the General Partners of
the Partnership, 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 the U.S. Department of Housing and Urban Development
(HUD). At December 31, 1998, the balance of HUD reserved cash at the facilities
was $400,604.
The Partnership believes that it will produce sufficient cash flow to meet its
ongoing operations needs associated with the two facilities currently owned by
the Partnership. In addition, the Partnership's cash reserves are considered
adequate to meet contingent liabilities related to third party reimbursements
from the operation of Colorado facilities previously owned by the Partnership.
During 1998, the Partnership did not receive any demands for payment of any
actual or contingent liabilities related to these previously owned facilities.
The Partnership has no existing lines of credit or assurance of financial
support from the General Partners, should the need arise.
Therefore, there can be no assurance that sufficient funds will be available.
As of December 31, 1998, the Partnership was not obligated to perform any major
capital expenditures. 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 distributed $150,000 to the Limited Partners on February 10,
1995. On February 15, 1996, the Partnership distributed $150,000 to the Limited
Partners. On February 15, 1997, the Partnership distributed $200,100 to the
Limited Partners. On February 15, 1998, the Partnership distributed $300,000 to
the Limited Partners. On September 30, 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 both the nursing facility and retirement center
level.
Significant changes have and will continue to be made in government
reimbursement programs, and such changes could have a material impact on future
reimbursement formulas. The Balance Budget Act of 1997 (the "Act"), enacted in
August, 1997, has targeted the Medicare program for reductions in spending
growth for skilled nursing facilities over the next five years, primarily
through the implementation of the PPS reimbursement system. The Partnership's
nursing home facility is scheduled to change to the PPS reimbursement system on
January 1, 1999. Management believes that revenues will be lower under PPS
reimbursement system; however, management believes that reductions in therapy
costs, use of general purchasing agents and other expense reduction measures
should in part offset the effect of any rate reductions. The Partnership can
give no assurance that payments under such program 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.
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<PAGE> 8
IMPACT OF THE YEAR 2000 ISSUE
As a result of computer programs which historically were written using a two
rather than four-digit convention to define the year component of dates, a
concern commonly known as the Year 2000 Issue has arisen globally. Computer
programs and equipment that use a two-digit convention may not be able to
differentiate between the 20th and 21st centuries (e.g. "00" can be read as
either 1900 or 2000). This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
Life Care Centers of America, the manager of the Partnership, has instituted a
number of Year 2000 information technology initiatives designed to insure
readiness and compliance with Year 2000 issues for all facilities operated by
Life Care Centers of America, including the Partnership, in a timely manner.
Acquisition and testing have begun to replace or upgrade facility patient
accounting and clinical applications. A committee has also been formed to
determine Year 2000 compliance for major equipment and mechanical systems in
each facility. It is intended that the committee will assist the facilities with
developing contingency plans to deal with any Year 2000 issues not addressed in
a timely manner. Finally, full testing of all computing platforms is scheduled
for early to mid 1999 at the Partnership's facilities.
Life Care Centers of America has also verified compliance with Year 2000 Issues
of all third-party applications used by the Partnership. Based on this
verification, the Partnership believes that all third-party applications will be
compliant on a timely basis. However, there can be no guarantee that the
software replacement projects undertaken by the Partnership upon completion of
the above reviews will be successful or that vendors supplying third-party
applications to the Partnership will be in compliance as of the end of 1999.
In addition, there can be no assurance that there will not be problems
identified when screening the Partnership's computing platforms and that such
problems will not have a material effect on the operating results. However, the
Partnership believes that the most likely adverse effect for the Partnership in
the event of the failure of any of its systems with respect to the Year 2000
issues would be minor delays in billing for a few days following January 1,
2000, until identified problems can be corrected. Contingency plans instituted
by the Partnership currently call for any facility experiencing billing delays
to complete manual billing in the event extended problems are encountered.
Costs associated with the Partnership's Year 2000 review and compliance have
been estimated to be approximately $49,500 per facility. The majority of this
cost will be incurred at implementation of corrections to the facilities'
equipment.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership does not engage in any transactions exposing the Company to
material market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data begin on page F-2 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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<PAGE> 9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not have officers or directors. At December 31, 1998, the
General Partners of the Partnership were Consolidated Associates II and WelCare
Service Corporation-II ("WSC-II") as Managing General Partner of the
Partnership. The executive officers and director of WSC-II who control the
affairs of the Partnership, are as follows:
<TABLE>
<CAPTION>
Name and Position Age Other Principal Occupations and Other Directorships During the Past 5 Years
- ----------------- --- ---------------------------------------------------------------------------
<S> <C> <C>
Forrest L. Preston, 66 Forrest L. Preston has served as a Director and Chairman of the Board of
Director and WSC-II since July 1998. For more than five years prior to the date hereof, Mr.
Chairman of the Preston has served as sole owner of Life Care Centers of America, the Manager
Board of the Partnership, and numerous other privately owned healthcare facilities.
Mr. Preston does not serve on the Board of Directors of any public company.
John F. McMullan, 62 John F. McMullan has served as President, Secretary and Director of WSC-II
President, Secretary since July 1998. For more than five years prior to the date hereof, Mr.
and Director McMullan has served as a consultant to Life Care Centers of America, the
Manager of the Partnership, and numerous other healthcare facilities. Mr.
McMullan is also a certified public accountant. Mr. McMullan does not serve
on the Board of Directors of any public company.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
No individual principal or principals as a group received any direct
remuneration from the Partnership.
The General Partners are not compensated directly for their services as general
partners of the Partnership. See Item 13 and Note 1 to the consolidated
financial statements appearing in Item 8 for further discussion of compensation
paid to affiliates of the General Partners.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(A) Security ownership of certain beneficial owners.
No individual or group as defined by Section 13(d)(3) of the Securities
Exchange Act of 1934, known to the Partnership is the beneficial owner
of more than 5% of the Partnership's securities.
(B) Security ownership of management.
The General Partners and their management own less than 1%.
The General Partners are entitled to distributions of cash from
operations and from "other sources" (primarily from the sale or
refinancing of Partnership properties, as set forth in Item 8, Note 3)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Affiliates and former affiliates of the General Partners, in accordance with the
Partnership Agreement, may receive compensation for services rendered. The
following is a summary of compensation paid to or accrued for the benefit of the
General Partners and affiliates in 1998:
<TABLE>
<S> <C>
Oversight management and management fees $75,423
Administration of partnership activities (1) $72,813
</TABLE>
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<PAGE> 10
(1) For reimbursement of expenses incurred by affiliates of the Managing
General Partner in performing administrative services including
investor relations and accounting. See Note 1 to the accompanying
consolidated financial statements appearing in Item 8.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following financial statements are included in Part II, Item 8:
(1) Consolidated Financial Statements:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - as of December 31, 1998 and 1997
Consolidated Statements of Operations - for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Partners' Equity (Deficit) - for
the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - for the Years Ended
December 31, 1998, 1997 and 1996
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
(2) The following financial statement schedule is included in this
Form 10-K Report:
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1998, 1997 and 1996
All other schedules are omitted since they are not required,
are not applicable or the financial information required
is included in the financial statements or notes thereto.
(3) The following exhibits are incorporated by reference and are
an integral part of this Form 10-K:
<TABLE>
<CAPTION>
Exhibit Number
(as per Exhibit Page
Table) Document Description Number
<S> <C> <C>
3.1 Agreement of Limited Partnership of Consolidated Resources Health Care N/A
Fund II, incorporated by reference to Exhibit A to the
Registration Statement on Form S-1, as amended, Page
A-1, File No. 2-87636, (now File No.
0-13415).
3.2 Amendment to Agreement of Limited Partnership of Consolidated Resources N/A
Health Care Fund II, incorporated by reference to Proxy Statement filed on
November 19, 1991, File No. 0-13415.
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C> <C>
3.3 Amendment to Amended and Restated Agreement and Certificate of Limited N/A
Partnership of Consolidated Resources Health Care Fund II, incorporated by
reference to Form 10-Q filed on August 19, 1998, File No. 0-13415.
21 Subsidiaries E
27 Financial Data Schedules (for SEC use only) E
E - Submitted electronically as a separate document
herewith the Registrant's Form 10-K
</TABLE>
(b) Reports on Form 8-K:
None
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CONSOLIDATED RESOURCES HEALTH CARE FUND II
(Registrant)
By: WELCARE SERVICE CORPORATION-II
Managing General Partner
Date: May 11, 1999 By: /s/ John F. McMullan
-----------------------------------------
John F. McMullan,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, on behalf of the Registrant and
in the capacities and on the dates indicated:
Date: May 11, 1999 By: /s/ John F. McMullan
-----------------------------------------
John F. McMullan
Sole Director and Principal
Executive Officer of the Managing
General Partner
Date: May 11, 1999 By: /s/ John F. McMullan
-----------------------------------------
John F. McMullan
Chief Financial Officer of the
Managing General Partner
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<PAGE> 13
The Partners
Consolidated Resources Health Care Fund II and Subsidiaries
We have audited the accompanying consolidated balance sheets of Consolidated
Resources Health Care Fund II and Subsidiaries (limited partnerships) (the
"Partnership") as of December 31, 1998 and 1997, and the related consolidated
statements of operations, partners' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1998. We have also audited the
accompanying Schedule II - Valuation and Qualifying Accounts (the "schedule").
These consolidated financial statements and schedule are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements and
schedule are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements
and schedule. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Consolidated Resources Health Care Fund II and Subsidiaries (limited
partnerships) at December 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
BDO Seidman, LLP
Atlanta, Georgia
April 9, 1999
F-1
<PAGE> 14
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1998 1997
----------- -----------
<S> <C> <C>
Assets
Current
Cash and cash equivalents (Note 6) $ 931,079 $ 257,310
Accounts receivable, net of allowance for doubtful accounts
of $14,562 and $19,035, respectively (Note 5) 348,459 321,537
Third-party payor settlement receivable (Note 5) 97,501 472,017
Due from related party (Note 1) -- 890,000
Prepaid expenses and other 36,177 18,964
----------- -----------
Total current assets 1,413,216 1,959,828
----------- -----------
Property and equipment (Notes 2 and 4)
Land 178,609 178,609
Buildings and improvements 6,821,838 6,733,131
Equipment and furnishings 919,370 808,245
----------- -----------
7,919,817 7,719,985
Less: accumulated depreciation (4,604,963) (4,142,935)
----------- -----------
Net property and equipment 3,314,854 3,577,050
----------- -----------
Other
Restricted escrows and other deposits (Note 2) 481,088 456,992
Deferred loan costs, net of accumulated amortization
of $13,553 and $12,516, respectively 18,757 19,794
----------- -----------
Total other assets 499,845 476,786
----------- -----------
$ 5,227,915 $ 6,013,664
=========== ===========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-2
<PAGE> 15
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1998 1997
----------- -----------
<S> <C> <C>
Liabilities and Partners' Equity (Deficit)
Current liabilities
Current maturities of long-term debt obligations (Note 2) $ 78,359 $ 75,836
Accounts payable 223,243 242,484
Accrued expenses 502,193 375,411
Accrued management fees substantially all to affiliates (Note 1) 394,918 440,167
Deposit liabilities 66,049 69,931
----------- -----------
Total current liabilities 1,264,762 1,203,829
Long-term debt obligations, less current
maturities (Note 2) 4,045,437 4,124,298
----------- -----------
Total liabilities 5,310,199 5,328,127
----------- -----------
Commitments and Contingencies (Notes 5 and 6)
Partners' equity (deficit) (Notes 2 and 3)
Limited partners 88,575 849,683
General partners (170,859) (164,146)
----------- -----------
Total partners' equity (deficit) (82,284) 685,537
----------- -----------
$ 5,227,915 $ 6,013,664
=========== ===========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-3
<PAGE> 16
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Revenue
Operating revenue (Note 5) $ 7,494,640 $8,304,474 $7,189,448
Interest income 35,323 32,154 29,115
----------- ---------- ----------
Total revenue 7,529,963 8,336,628 7,218,563
----------- ---------- ----------
Operating costs and expenses
Operating expenses 6,103,654 6,134,554 5,516,102
Depreciation and amortization 466,400 437,665 389,943
Interest (Note 2) 313,126 319,009 323,011
Management and oversight fees (Note 1) 539,483 497,528 414,379
Real estate taxes 145,621 126,169 122,642
Partnership administration costs substantially
all to affiliates (Note 1) 129,500 157,628 173,774
----------- ---------- ----------
Total operating costs and expenses 7,697,784 7,672,553 6,939,851
----------- ---------- ----------
Net income/(loss) (167,821) $ 664,075 $ 278,712
=========== ========== ==========
Net income/(loss) per limited partnership unit $ (10.74) $ 42.50 $ 17.84
=========== ========== ==========
Limited partnership units outstanding 15,000 15,000 15,000
=========== ========== ==========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-4
<PAGE> 17
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Statements of Partners' Equity (Deficit)
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Total
Partners'
Equity
Limited General (Deficit)
------- ------- ---------
<S> <C> <C> <C>
Partners' equity (deficit), at January 1, 1996 $ 294,707 $(201,857) $ 92,850
Net income 267,564 11,148 278,712
Distributions (Note 3) (150,000) -- (150,000)
--------- --------- ---------
Partners' equity (deficit), at December 31, 1996 412,271 (190,709) 221,562
Net income 637,512 26,563 664,075
Distributions (Note 3) (200,100) -- (200,100)
--------- --------- ---------
Partners' equity (deficit), at December 31, 1997 849,683 (164,146) 685,537
Net income/(loss) (161,108) (6,713) (167,821)
Distributions (Note 3) (600,000) -- (600,000)
--------- --------- ---------
Partners' equity (deficit), at December 31, 1998 $ 88,575 $(170,859) $ (82,284)
========= ========= =========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-5
<PAGE> 18
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net income/(loss) $(167,821) $ 664,075 $ 278,712
Adjustments to reconcile net income/(loss) to cash
provided by operating activities:
Depreciation and amortization 466,400 437,665 389,943
Loss on disposal of fixed assets -- 21,807 --
Changes in operating assets and liabilities:
Accounts receivable, net (26,922) 21,884 222,544
Prepaid expenses and other (17,213) (4,404) 29,757
Accounts payable (19,241) 44,534 (137,290)
Accrued liabilities and deposit liabilities 77,651 78,361 (33,389)
Third-party payor settlement receivable 374,516 (446,393) (25,624)
--------- ----------- -----------
Cash provided by operating activities 687,370 817,529 724,653
--------- ----------- -----------
Investing activities
Payments for purchases of property and equipment, net (203,167) (595,224) (265,094)
Net change in restricted escrows and other deposits (24,096) (141,980) (34,766)
--------- ----------- -----------
Cash used in investing activities (227,263) (737,204) (299,860)
--------- ----------- -----------
Financing activities
Principal payments on long-term debt obligations (76,338) (72,673) (50,335)
Due from related party 890,000 (890,000) --
Distributions paid to limited partners (600,000) (200,100) (150,000)
--------- ----------- -----------
Cash provided by (used in) financing activities 213,662 (1,162,773) (200,335)
Net increase (decrease) in cash and cash equivalents 673,769 (1,082,448) 224,458
Cash and cash equivalents, beginning of year 257,310 1,339,758 1,115,300
--------- ----------- -----------
Cash and cash equivalents, end of year $ 931,079 $ 257,310 $ 1,339,758
========= =========== ===========
Supplemental Disclosure:
Cash paid during the year for interest $ 313,126 $ 319,009 $ 323,011
========= =========== ===========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-6
<PAGE> 19
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Summary Of Significant Accounting Policies
Organization
Consolidated Resources Health Care Fund II (the "Partnership") was organized on
October 31, 1983 as a limited partnership under the provisions of the Georgia
Uniform Limited Partnership Act for the purpose of acquiring, operating and
holding for investment and future capital appreciation income producing, health
care related real properties. Investments in healthcare real property consist of
a nursing home and a retirement center in Ohio. During 1998, the average
occupancy for the nursing home and retirement center was 90% and 73%,
respectively.
Prior to July 16, 1998, the General Partners of the Partnership were WelCare
Consolidated Resources Corporation of America, serving as the Corporate General
Partner, ("WCRCA" or the "Corporate General Partner"), a Nevada corporation,
WelCare Service Corporation-II, serving as Managing General Partner, ("WSC-II"
or the "Managing General Partner"), a Georgia corporation, and Consolidated
Associates II, ("CA-II"), a Georgia general partnership (collectively the
"General Partners"). On January 30, 1997, all of the stock of the Corporate
General Partner and the Managing General Partner was sold to Consolidated
Partners Corporation, which is wholly-owned by a general partner of CA-II. The
General Partners collectively hold a 4% ownership interest in the Partnership.
The limited partners hold 15,000 partnership units which comprise 96% ownership
in the Partnership.
On July 16, 1998, WCRCA assigned all of its right, title and interest in and to
its general partner interest in the Partnership to WSCII. On July 22, 1998, an
amendment to Amended and Restated Agreement and Certificate of Limited
Partnership was filed 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 its issued and outstanding shares to a third party.
The financial statements do not reflect assets the partners may have outside
their interests in the Partnership, nor any personal obligations including
income taxes, of the individual partners.
Consolidation
The consolidated financial statements include the accounts of the Partnership
and the accounts of the subsidiary partnerships in which it holds a majority
interest. All significant intercompany balances and transactions have been
eliminated. The amount of minority interest is immaterial.
Property and Equipment
Property and equipment are recorded at cost less appropriate reductions for
permanent declines in net realizable value. Property and equipment are not
adjusted for increases in net realizable value.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.
Depreciation and Amortization
Property and equipment are depreciated using the straight-line method over lives
of 5 to 30 years. Renewals and betterments are capitalized and repairs and
maintenance are charged to operations as incurred.
Deferred Loan Costs
Deferred loan costs are amortized over the terms of the respective loans using
the straight-line method which approximates the effective interest method.
Amortization of deferred loan costs is included in depreciation and amortization
expense.
F-7
<PAGE> 20
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Summary Of Significant Accounting Policies
Operating Revenue
Operating revenue is recorded when services are rendered and includes amounts
reimbursable by the Medicaid and Medicare programs. Revenues are recorded at the
estimated net realizable amounts from patients, third-party payors, and others
for services rendered including estimated retroactive adjustments under
reimbursement agreements with Medicare and Medicaid. Retroactive adjustments are
accrued in the period related services are rendered and adjusted in future
periods as final settlements are determined.
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 ("PPS") for
skilled services. The PPS per diem, which would cover routine service, ancillary
and capital related 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 for case mix and geographic variations in labor costs. The
blended rate will be further adjusted by a facility-specific case mix (acuity)
index.
The Partnership's nursing home is scheduled to change to the PPS reimbursement
system January 1, 1999. Management believes that revenues will be lower under
PPS; however, reductions in therapy costs, use of general purchasing agents and
other expense reduction measures should in part offset the effect of any rate
reductions. The Company 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 Company.
Income Taxes
No provision has been made in the consolidated financial statements for Federal
income taxes because under current law, no Federal income taxes are paid
directly by the Partnership. The Partnership reports certain transactions
differently for tax and financial statement purposes.
Allocation of Net Income or Net Loss
The Partnership's net profits and net losses (other than net profits or net
losses from a sale or refinancing of Partnership property), are allocated 96% to
the Limited Partners and 4% to the General Partners. Distributions are computed
as described in Note 4.
Net losses resulting from a sale or refinancing shall be allocated 99% to the
Limited Partners and 1% to the General Partners. Net profits resulting from a
sale or refinancing shall be allocated in the following order:
(1) First, 1% to the General Partners and 99% to the Limited Partners until
the net profits allocated to the Limited Partners from such sale or
refinancing equals the excess of the greater of the following items
over their capital account immediately prior to such sale or
refinancing:
(a) zero; or
(b) the Limited Partners' invested capital immediately prior to
such sale or refinancing plus 9% per annum of the Limited
Partners' average invested capital for all fiscal years to the
extent not received through prior distributions of
distributable cash from operations or sale or refinancing
proceeds; or
(c) the amount of sale or refinancing proceeds distributable to
the Limited Partners;
F-8
<PAGE> 21
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Summary Of Significant Accounting Policies
(2) Second, to the General Partners until the net profits allocated to the
General Partners from such sale or refinancing equals the excess of the
greater of the following items over their capital account immediately
prior to such sale or refinancing:
(a) zero; or
(b) the amount of sale or refinancing proceeds distributable to
the General Partners from such sale or refinancing;
(3) Third, any remaining net profits shall be allocated 15% to the
General Partners and 85% to the Limited Partners.
Net Income Per Limited Partnership Unit
Net income per Limited Partnership Unit is computed by dividing net income
allocated to the Limited Partners by the number of Limited Partnership units
outstanding.
Statements of Cash Flows
For purposes of this statement, cash equivalents include U.S. government
securities, commercial paper and certificates of deposit with original
maturities of three months or less.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain 1996 and 1997 amounts have been reclassified to conform to the 1998
presentation.
New Accounting Pronouncements
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting information about operating segments in
annual financial statements and interim financial reports issued to
shareholders. Generally, certain financial information is required to be
reported on the basis that is used internally for evaluating performance of and
allocation of resources to operating segments. The Partnership operates two
healthcare facilities consisting of a nursing home and a retirement center. The
Partnership has aggregated the operating segments of each facility due to
similar economic characteristics including the nature of services provided and
customer base. The Partnership has determined that this standard did not impact
its current practice of reporting operating segment information.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
SFAS No. 133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. Historically, the Company has not
entered into derivatives contracts either to hedge existing risks or for
speculative purposes. Accordingly, the Partnership does not expect adoption of
the new standard on January 1, 2000, to affect its financial statements.
F-9
<PAGE> 22
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Notes to Consolidated Financial Statements
1. Management Fees and Affiliate Transactions
A related company of the minority interest holder manages the nursing home and
retirement center for a fee of 5% of gross operating revenues. On July 23,
1998, the minority interest holder acquired the interests of the Managing
General Partner in the Partnership. Fees totalling $414,401, $358,667 and
$331,034 were paid to the management company for the years ended December 31,
1998, 1997 and 1996, respectively. In addition, an affiliate of the Corporate
General Partner was paid an oversight management fee of 1% of gross operating
revenue totalling $75,423, $83,127 and $55,712 in 1998, 1997 and 1996,
respectively.
During 1998, 1997 and 1996, the affiliate of the Corporate General Partner was
reimbursed for costs incurred in connection with the administration of
Partnership activities in the amount of $72,813, $72,813 and $44,364,
respectively. These expenses are included in Partnership administration costs on
the accompanying Consolidated Statement of Operations.
Accrued management fees consist of amounts payable to affiliates and former
affiliates and an unrelated management company and resulted from management fees
incurred prior to 1992. During 1996, these amounts were reduced by amounts due
from an affiliate of the Corporate General Partner. In 1997, the amounts due
from the affiliate of the Corporate General Partner were recovered.
Amounts due from related party at December 31, 1997 include cash held in
accounts controlled by the General Partners of the Partnership.
2. Long-Term Debt Obligations
Long-term debt obligations consisted of:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
7.5% note related to Mayfair Village Nursing Care Center, collateralized by a
first trust deed on land, buildings and furnishing and insured by the U.S.
Department of Housing and Urban Development; payable in monthly installments of
principal and interest of $12,050, due January 1, 2020 $1,530,877 $1,563,214
7.5% note related to Mayfair Retirement Center, collateralized by a first trust
deed on land, buildings and furnishing and insured by the U.S. Department of
Housing and Urban Development; payable in monthly installments of principal and
interest of $20,023, due March 1, 2021 2,592,919 2,636,920
---------- ----------
4,123,796 4,200,134
Less current maturities 78,359 75,836
---------- ----------
$4,045,437 $4,124,298
========== ==========
</TABLE>
F-10
<PAGE> 23
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Notes to Consolidated Financial Statements
Future maturities of long-term debt obligations at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Amount
<S> <C>
1999 $ 78,359
2000 84,125
2001 90,656
2002 97,695
2003 105,279
Thereafter 3,667,682
----------
$4,123,796
==========
</TABLE>
Restricted escrows and other deposits include amounts held in trust for payment
of property taxes and insurance and for repairs and replacements of the property
as approved by HUD. Under covenants contained in the Regulatory agreement with
HUD, the subsidiary partnerships are limited as to the amount of distributions
they may make to the Partnership to the extent of surplus cash, as defined. The
Regulatory Agreement also imposes restrictions regarding cash receipts and
disbursements and compliance with the Fair Housing Act.
The fair value of the Partnership's obligations are estimated on the quoted
market prices for the same or similar issues or on the current rates offered to
the Partnership for debt of the same remaining maturities. Carrying values of
the Partnerships' financial instruments approximate their fair values at
December 31, 1998.
3. Distributions
Distributions to the partners are paid from operations of the Partnership's
properties or from sales or refinancing of properties. Cash from operations is
distributed 96% to the Limited Partners and 4% to the General Partners. However,
no distributions of cash from operations shall be made to the General Partners
in any year until the Limited Partners have received distributions for such year
equal to 9% of their invested capital.
Distributions of cash from sales and refinancing are made in the following
order:
(a) First, to the Limited Partners in an amount equal to their invested
capital; then,
(b) to the Limited Partners in an amount necessary to provide the Limited
Partners with a 9% cumulative, non-compounded return on invested
capital to the extent not previously received through distributions of
distributable cash from operations; then,
(c) to the General Partners in an amount up to 3% of the sale price of all
properties on a cumulative basis; then,
(d) the balance of such proceeds shall be distributed 15% to the General
Partners and 85% to the Limited Partners.
The Partnership distributed cash of $600,000, $200,100 and $150,000 to the
Limited Partners for the years ended December 31, 1998, 1997 and 1996,
respectively. Cumulative distributions paid to the Limited Partners as of
December 31, 1998 are $3,538,203. No distributions have been made to the General
Partners.
4. Loss on Write-Down of Properties
Prior to 1992, the Partnership recorded write-downs to reduce the carrying value
of certain properties to their estimated net realizable value as determined by
the Corporate General Partner.
F-11
<PAGE> 24
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Notes to Consolidated Financial Statements
The balance of these write-downs and the carrying values of the property and
equipment were as follows as of December 31, 1998.
<TABLE>
<CAPTION>
Write Down Carrying Values
---------- ---------------
<S> <C> <C>
Mayfair Village Nursing Care Center $1,441,848 $1,200,667
Mayfair Retirement Center 440,602 2,114,187
---------- ----------
$1,882,450 $3,314,854
========== ==========
</TABLE>
5. Cost Reimbursements
Accounts receivable and operating revenue include amounts estimated by
management to be reimbursable by Medicaid and Medicare under the provisions of
cost reimbursement formulas in effect. Final determination of amounts earned is
subject to audit by the intermediaries. In the opinion of management, adequate
provision has been made for any adjustments that may result from such audits.
Differences between estimated provisions and final settlement are reflected as
charges or credits to operating revenue in the year finalized. Significant
changes have and will continue to be made in government reimbursement programs,
and such changes could have a material impact on future reimbursement formulas.
At December 31, 1998 and 1997, estimated third-party payor settlement
receivables were $97,501 and $472,017, respectively.
Medicaid and Medicare programs accounted for approximately 63%, 61% and 58% of
operating revenue during 1998, 1997 and 1996, respectively.
Accounts receivable, recorded at net realizable value, relate principally to
amounts due from both the Ohio Medicaid program and Medicare are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Ohio Medicaid Program $ 38,371 $126,617
Medicare $182,739 $133,864
</TABLE>
Amounts due from the Ohio Medicaid program are paid on an interim and final
basis generally within 30 to 60 days from date of billing. Amounts due from the
Medicare program are generally received within 30 to 90 days on an interim basis
with final settlement occurring annually.
6. Concentrations of Credit Risk
At December 31, 1998, the Partnership had cash on deposit at one bank which
exceeded the Federal Deposit Insurance Corporation limit in the aggregate by
$667,881.
F-12
<PAGE> 25
SCHEDULE
F-13
<PAGE> 26
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Balance at Additions charged to Balance at
beginning of year costs and expenses Deductions (1) end of year
----------------- ------------------ -------------- -----------
<S> <C> <C> <C> <C>
1998
Allowance for
doubtful accounts $19,035 $9,856 $(14,329) $14,562
======= ====== ========= =======
1997
Allowance for
doubtful accounts $53,554 $6,671 $(41,190) $19,035
======= ====== ========= =======
1996
Allowance for
doubtful accounts $73,218 $ -- $(19,664) $53,554
======= ====== ======== =======
</TABLE>
(1) Represents direct write-offs of receivables and recoveries of previously
written off receivables.
F-14
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
Mayfair Village, Ltd.
Mayfair Nursing Care Center, Ltd.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998 10-K OF CONSOLIDATED RESOURCES HEALTHCARE FUND II AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH 10-K.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 931,079
<SECURITIES> 0
<RECEIVABLES> 482,137
<ALLOWANCES> 14,562
<INVENTORY> 0
<CURRENT-ASSETS> 1,413,216
<PP&E> 7,919,817
<DEPRECIATION> 4,604,963
<TOTAL-ASSETS> 5,227,915
<CURRENT-LIABILITIES> 1,264,762
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (82,284)
<TOTAL-LIABILITY-AND-EQUITY> 5,227,915
<SALES> 7,494,640
<TOTAL-REVENUES> 7,529,963
<CGS> 6,103,654
<TOTAL-COSTS> 7,384,658
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 313,316
<INCOME-PRETAX> (167,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (167,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (167,821)
<EPS-PRIMARY> (10.74)
<EPS-DILUTED> (10.74)
</TABLE>
