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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 JUNE 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO
___________
COMMISSION FILE NUMBER 0-13415
CONSOLIDATED RESOURCES HEALTH CARE FUND II
(Exact name of registrant as specified in its charter)
Georgia 58-1542125
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1175 Peachtree Street, Suite 850, Atlanta, GA 31106
(Address of principal executive offices) (Zip Code)
(404) 873-1919
(Registrant's telephone number, including area code)
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 [ ] No [x]
Part I. Financial Information
Consolidated Resources Health Care Fund II
Condensed Consolidated Balance Sheets
June 30,
2001 December 31,
(Unaudited) 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,452,482 $ 1,105,822
Accounts receivable, net of allowance for doubtful 356,586
accounts of $11,947 and $6,304, respectively 280,969
Prepaid expenses and other -- 6,046
----------- -----------
Total current assets 1,733,451 1,468,454
Property and equipment
Land 178,609 178,609
Buildings and improvements 7,024,408 6,976,479
Equipment and furnishings 1,172,060 1,086,550
----------- -----------
8,375,077 8,241,638
Accumulated depreciation and amortization (5,753,825) (5,509,461)
----------- -----------
Net property and equipment 2,621,252 2,732,177
----------- -----------
Other
Restricted escrows and other deposits 565,413 557,302
Deferred loan costs, net of accumulated amortization
of $16,941 and $16,423 respectively 16,165 16,683
----------- -----------
Total other assets 581,578 573,985
----------- -----------
$ 4,936,281 $ 4,774,616
=========== ===========
See accompanying notes to condensed consolidated financial statements.
June 30, 2001 December 31,
(Unaudited) 2000
----------- -----------
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 94,102 $ 90,464
Accounts payable 130,604 67,735
Accrued expenses 485,584 488,313
Accrued management fees 394,918 394,918
Due to related party -- 15,913
Deposit liabilities 99,744 88,261
----------- -----------
Total current liabilities 1,204,952 1,145,604
----------- -----------
Long-term obligations, less current maturities 3,817,807 3,866,168
----------- -----------
Total liabilities 5,022,759 5,011,772
----------- -----------
Partners' equity (deficit):
Limited partners 84,549 (60,102)
General partners (171,027) (177,054)
----------- -----------
Total partners' equity (deficit) (86,478) (237,156)
----------- -----------
$ 4,936,281 $ 4,774,616
=========== ===========
See accompanying notes to condensed consolidated financial statements.
Consolidated Resources Health Care Fund II
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended Six Months ended
June 30, June 30,
2001 2000 2001 2000
---------- ----------- ---------- ----------
Revenue:
Operating revenues $2,051,073 $ 1,732,734 $3,970,921 $3,514,404
Interest income 12,165 13,247 26,690 26,166
---------- ----------- ---------- ----------
Total revenue 2,063,238 1,745,981 3,997,611 3,540,570
---------- ----------- ---------- ----------
Expenses:
Operating expenses 1,710,065 1,580,678 3,401,505 3,070,768
Depreciation & amortization 125,821 119,936 244,883 239,365
Interest 73,598 75,471 147,751 151,234
Partnership administration costs 19,675 29,177 52,794 58,214
---------- ----------- ---------- ----------
Total expenses 1,929,159 1,805,262 3,846,933 3,519,581
---------- ----------- ---------- ----------
Net income (loss) $ 134,079 $ (59,281) $ 150,678 $ 20,989
========== =========== ========== ==========
Net income (loss) per L.P. unit $ 8.58 $ (3.79) $ 9.64 $ 1.34
========== =========== ========== ==========
L.P. units outstanding 15,000 15,000 15,000 15,000
========== =========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
Consolidated Resources Health Care Fund II
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six months ended June 30,
2001 2000
----------- -----------
Operating Activities:
Cash received from residents and government 4,046,538 3,458,868
agencies
Cash paid to suppliers and employees (3,384,741) (3,409,652)
Interest received 26,690 26,166
Interest paid (147,751) (151,234)
Cash provided by (used in) operating activities 540,736 (75,852)
----------- -----------
Investing Activities:
Additions to property and equipment (133,440) (49,161)
----------- -----------
Financing Activities:
Principal payments on long-term debt (44,723) (41,535)
Decrease in amount due to related party (15,913) (594)
----------- -----------
Cash used in financing activities (60,636) (42,129)
----------- -----------
Net increase (decrease) in cash and cash equivalents 346,660 (167,142)
Cash and cash equivalents, beginning of period 1,105,822 1,161,934
----------- -----------
Cash and cash equivalents, end of period $ 1,452,482 $ 994,792
=========== ===========
See accompanying notes to condensed consolidated financial statements.
Consolidated Resources Health Care Fund II
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six months ended June 30,
2001 2000
---- ----
Reconciliation of Net Income to cash
Provided by (used in) Operating Activities:
Net income $ 150,678 $ 20,989
Depreciation and amortization 244,883 239,365
Changes in assets and liabilities:
Accounts receivable 75,616 (55,536)
Restricted escrows (8,111) (138,969)
Other current assets 6,046 10,603
Accounts payable and accrued liabilities 71,623 (152,304)
----------- ----------
Cash provided by (used in) operating activities $ 540,736 $ (75,852)
=========== ==========
See accompanying notes to condensed consolidated financial statements.
CONSOLIDATED RESOURCES HEALTH CARE FUND II
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
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 and six month periods ended June 30, 2001, are not necessarily
indicative of the results to be expected for the year ending December 31,
2001.
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, 2000, 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:
Six months ended June 30,
2001 2000
---- ----
Charged to operating expenses:
Property management and oversight
management fees........................... $39,675 $33,730
Financial accounting, data processing,
tax reporting, legal and compliance,
investor relations and supervision
of outside services....................... $52,794 $58,214
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,
changes to amounts recorded as revenues due to final resolution of amounts due
to and from third-party payors, and other factors affecting the Partnership's
business that may be beyond its control.
At June 30, 2001, 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 increased by $318,339 for the quarter ended June 30,
2001 as compared to the same period for the prior year and by $456,517 for
the six months ended June 30, 2001 as compared to the same period for the
prior year. These increases are primarily attributable to increases in
overall occupancy at both facilities during the six-month period as well as
improved quality mix at the nursing center in the private pay and Medicare
categories. Medicare and managed care rates at the nursing center also
improved. Occupancy levels at the retirement facility were the best
achieved over the past four quarters despite continued heavy competition in
the market. At June 30, 2001 the occupancy rate at the retirement facility
was 89.7%, an improvement of 3.2 occupied units compared to the prior
quarter, and the occupancy rate of the nursing facility was 95.1%,
approximately 3% better than the prior quarter.
Expenses:
- --------
Operating expenses increased by $129,387 for the quarter ended June 30, 2001 as
compared to the same period for the prior year and increased by $330,737 for the
six months ended June 30, 2001 as compared to the same period for the prior
year. The increase is primarily due to increased labor expenses due to increased
services for residents, an increase in the need for contract services and supply
and utility costs increases at the facilities, offset in part by decreases in
labor and contract services costs at the nursing center. For the period ended
June 30, 2001, total salary costs increased by $58,698 at the nursing facility
and $22,874 at the retirement facility.
Liquidity and Capital Resources:
- -------------------------------
At June 30, 2001, the Partnership held cash and cash equivalents of $1,452,482,
an increase of $187,739 from March 31, 2001. 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 Partnership's two
facilities must be maintained in accordance with operating reserves established
by HUD.
The Partnership's two facilities produced sufficient revenues to meet their
operating and debt service obligations. Management believes that these
facilities will produce positive cash flow in 2001; however, no assurance can be
given that the facilities will produce positive cash flow if revenues decline.
As of June 30, 2001, 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 ($376,541 at June 30, 2001) 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 prospective
payment system ("PPS") reimbursement system. The Partnership's nursing facility
changed to the PPS reimbursement system on January 1, 1999. Management believes
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 any rate reductions arising from the PPS reimbursement system. 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.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership has not entered into any transactions using derivative financial
instruments or other market risk sensitive instruments and believes that its
exposure to market risk associated with other financial instruments (such as
investments and borrowings) and interest rate risk is not material.
Part II - Other Information
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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: April 22, 2003 By:/s/ John F. McMullan
------------------------
John F. McMullan
Chief Financial Officer
Date: April 22, 2003 By:/s/ Marilyn McMullan
------------------------
Marilyn McMullan
Assistant Secretary
CERTIFICATION
I, John F. McMullan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consolidated
Resources Health Care Fund II;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report.
Date: April 22, 2003 By: /s/ John M. McMullan
------------------------
John F. McMullan
Chief Financial Officer (chief
executive and chief financial
officer of the Partnership)