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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 MARCH 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
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COMMISSION FILE NUMBER 0-13415
CONSOLIDATED RESOURCES HEALTH CARE FUND II
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<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, GA 31106
(Address of principal executive offices) (Zip Code)
</TABLE>
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
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PART I. FINANCIAL INFORMATION
CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 957,656 $ 931,079
Accounts receivable, net of allowance for doubtful
accounts of $42,996 and $14,562 688,519 445,960
Prepaid expenses and other 24,537 36,177
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Total current assets 1,670,712 1,413,216
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Property and equipment
Land 178,609 178,609
Buildings and improvements 6,884,661 6,821,838
Equipment and furnishings 922,285 919,370
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7,985,555 7,919,817
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Accumulated depreciation and amortization (4,719,012) (4,604,963)
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Net property and equipment 3,266,543 3,314,854
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Other
Restricted escrows and other deposits 429,930 481,088
Deferred loan costs, net of accumulated amortization of
$13,813 and $13,553 18,499 18,757
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Total other assets 448,429 499,845
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$ 5,385,684 $ 5,227,915
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</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
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<S> <C> <C>
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 78,359 $ 75,359
Accounts payable 290,045 223,243
Accrued expenses 395,679 502,193
Accrued management fees 394,918 394,918
Other liabilities 399,336 66,049
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Total current liabilities 1,558,337 1,264,762
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Long-term obligations, less current maturities 4,022,385 4,045,437
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Total liabilities 5,580,722 5,310,199
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Partners' equity (deficit):
Limited partners (19,669) 88,575
General partners (175,369) (170,859)
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Total partners' equity (195,038) (82,284)
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$ 5,385,684 $ 5,227,915
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</TABLE>
See accompanying notes to consolidated financial statements.
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CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
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<S> <C> <C>
Revenue:
Operating revenues $ 1,681,083 $2,036,150
Interest income 6,351 3,513
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Total revenue 1,687,434 2,039,663
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Expenses:
Operating expenses 1,557,744 1,734,430
Depreciation & amortization 114,309 114,743
Interest 77,366 78,840
Partnership administration costs 50,769 24,858
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Total expenses 1,800,188 1,952,871
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Net income (loss) $ (112,754) $ 86,792
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Net income (loss) per L.P. unit $ (7.22) $ 5.55
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L.P. units outstanding 15,000 15,000
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</TABLE>
See accompanying notes to consolidated financial statements.
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CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
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<S> <C> <C>
Operating Activities:
Cash received from residents and government agencies $ 1,489,682 $ 2,278,773
Cash paid to suppliers and employees (1,261,224) (1,397,416)
Interest received 6,351 3,513
Interest paid (77,366) (78,840)
Property taxes paid (42,076) (58,798)
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Cash provided by (used in) operating activities 115,367 747,232
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Investing Activities:
Additions to property and equipment (65,738) (27,454)
Financing Activities:
Principal payments on long-term debt (23,052) (12,798)
Due from related party -- 300,000
Distributions -- (300,000)
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Cash used in financing activities (23,052) (12,798)
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Net increase (decrease) in cash and cash equivalents 26,577 706,980
Cash and cash equivalents, beginning of period 931,079 257,310
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Cash and cash equivalents, end of period $ 957,656 $ 964,290
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</TABLE>
See accompanying notes to consolidated financial statements.
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CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
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<S> <C> <C>
Reconciliation of Net Income (Loss) to cash
Provided by Operating Activities:
Net income (loss) $(112,754) $ 86,792
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Depreciation and amortization 114,309 114,742
Changes in assets and liabilities:
Accounts receivable (242,559) 242,623
Restricted escrows 51,158 93,740
Other current assets 11,638 4,106
Accounts payable and accrued liabilities 293,575 205,229
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Cash provided by operating activities $ 115,367 $747,232
========= ========
</TABLE>
See accompanying notes to consolidated financial statements
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CONSOLIDATED RESOURCES HEALTH CARE FUND II
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Partners'
Capital
Limited General (Deficit)
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<S> <C> <C> <C>
Balance, at December 31, 1997 $ 849,683 $(164,146) $ 685,537
Net Income 83,320 3,472 86,792
Distribution (300,000) -- (300,000)
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Balance, at March 31, 1998 $ 633,003 $(160,674) $ 472,329
========= ========= =========
Balance, at December 31, 1998 $ 88,575 $(170,859) $ (82,284)
Net Income (Loss) (108,244) (4,510) (112,754)
Distribution -- -- --
--------- --------- ---------
Balance, at March 31, 1999 $ (19,669) $(175,369) $(195,038)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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CONSOLIDATED RESOURCES HEALTH CARE FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
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 three months ended March
31, 1999, are not necessarily indicative of the results to be expected for the
year ending December 31, 1999.
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, 1998,
as filed with the Securities and Exchange Commission, a copy of which is
available upon request by writing to WelCare Service Corporation-II 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>
Three months ended March 31,
1999 1998
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<S> <C> <C>
Charged to costs and expenses:
Property management and oversight
management fees............................................ $27,443 $20,417
Financial accounting, data processing,
tax reporting, legal and compliance,
investor relations and supervision
of outside services........................................ $50,769 $18,203
</TABLE>
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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, additional 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, 1999, 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").
RESULTS OF OPERATIONS
Revenues:
Operating revenue decreased by $355,067 for the quarter ended March 31, 1999 as
compared to the same period for the prior year. This decrease is primarily
attributable to a decrease in occupied units at the retirement facility, a
decrease in the number of Medicare patients at the nursing facility and the
implementation of the Medicare prospective payment system (the "PPS"). Despite a
slight increase in census at the retirement facility for the current period as
compared to the immediately preceding quarter ended December 31, 1998, census at
the retirement facility for the current period continued to be less than the
census for the same period for the prior year. Census at the nursing facility
remained stable during the quarter ended March 31, 1999; 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.
Expenses:
Operating expenses decreased by $176,686 for the quarter ended March 31, 1999 as
compared to the same period for the prior year. The decrease is primarily due to
reductions in staffing at the nursing facility as a result of the implementation
of the PPS reimbursement system on January 1, 1999 and in response to the lower
Medicare census.
Liquidity and Capital Resources:
At March 31, 1999, the Partnership held cash and cash equivalents of $957,656,
an increase of $26,577 from December 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.
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The Partnership's two facilities produced sufficient revenues to meet their
operating and debt service obligations as well as provide additional cash flow
to supplement cash reserves. Management believes that these facilities should
continue to produce positive cash flow in 1999; however, no assurance can be
given that the facilities will continue to produce positive cash flow if
revenues were to continue to decline.
As of March 31, 1999, 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.
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 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 facility changed to the PPS
reimbursement system on January 1, 1999. Operating revenues were lower for the
quarter ended March 31, 1999 as compared to the same period for the prior year
in part due to the implementation of the PPS reimbursement system. Management
believes, however, that continued and increased reductions in therapy costs, the
use of general purchasing agents and other expense reduction measures should in
part offset the effect of these 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.
YEAR 2000 INITIATIVES
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 with Year 2000 issues for all facilities operated by Life Care Centers
of America for 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 of all third-party
applications used by the Partnership with Year 2000 issues. 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
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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.
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule.
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: June 9, 1999 By: /s/ John F. McMullan
--------------------------
John F. McMullan
Chief Financial Officer
Date: June 9, 1999 By: /s/ Marilyn M. McMullan
--------------------------
Assistant Secretary
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED RESOURCES HEALTH CARE FUND II MARCH 31, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 957,656
<SECURITIES> 0
<RECEIVABLES> 731,515
<ALLOWANCES> 42,996
<INVENTORY> 0
<CURRENT-ASSETS> 1,670,712
<PP&E> 7,985,555
<DEPRECIATION> 4,719,012
<TOTAL-ASSETS> 5,385,684
<CURRENT-LIABILITIES> 1,558,337
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (195,038)
<TOTAL-LIABILITY-AND-EQUITY> 5,385,684
<SALES> 1,681,083
<TOTAL-REVENUES> 1,687,434
<CGS> 1,672,053
<TOTAL-COSTS> 1,800,188
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,366
<INCOME-PRETAX> (112,754)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112,754)
<EPS-BASIC> (7.22)
<EPS-DILUTED> (7.22)
</TABLE>
