UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549




FORM
      10-K




For
      annual and transition 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
                endedDecember 31,
                2006




OR




|_|
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934  For the transition period from __________ to
                __________




Commission
      file number 0-13415




CONSOLIDATED
      RESOURCES HEALTH CARE FUND II





(Exact
      name of registrant as specified in its charter)


Georgia
            58-1542125





(State
                or other jurisdiction
              of
                incorporation or organization)
            (I.R.S.
                Employer
              identification
                No.)




1175
      Peachtree Street, Suite 1230, Atlanta, Georgia 30361


(Address
      of principal executive offices)  (Zip Code)







Registrant’s
                telephone number, including area code:
            404-873-1919Securities
                registered pursuant to Section 12(b) of the Act:
            NoneSecurities
                registered pursuant to Section 12(g) of the Act:
            Limited
                Partnership Units


Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.   Yes |_|   No
      |X|




Indicated
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.   Yes |_|   No
      |X|




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 (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
      |_|   No |X|




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 definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.       |X|




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Exchange Act Rule 12b-2). |


Yes
      |_|   No |X|




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      2b-2
      of the Exchange Act). |


Yes
      |_|   No |X





Based
      on
      a Unit ownership register dated July 11, 2007, of the registrant’s 15,000
      Limited Partnership Units, 13,195 are held by non-affiliates.  The
      aggregate market value of Units held by non-affiliates is not determinable
      with
      certainty as there is no public trading market for the Units and transfers
      of
      Units are subject to certain restrictions.  However, based on the $800
      offer price for the Units reflected in the Tender Offer Statement on Schedule
      TO
      filed with the Securities and Exchange Commission on March 26, 2007 (the
“Mackenzie 2007 Offer”) by MPF-NY 2007, LLC; MPF Badger Acquisition Co., LLC; MP
      Falcon Fund, LLC; MacKenzie Patterson Special Fund 6, LLC; MacKenzie Patterson
      Special Fund 6-A, LLC; MP Value Fund 8, LLC; MPF Acquisition Co. 3, LLC;
      MacKenzie Patterson Special Fund 5, LLC; MPF Senior Note Program I, LP; MPF
      ePlanning Opportunity Fund, LP; MPF DeWaay Fund 4, LLC; MPF Income Fund 22,
      LLC;
      MPF Special Fund 8, LLC; MacKenzie Patterson Special Fund 7, LLC; MPF DeWaay
      Premier Fund 4, LLC; MPF Special Fund 9, LLC; and MacKenzie Patterson Fuller,
      LP
      (the “Mackenzie Purchasers”), we calculate the aggregate market value of Units
      held by non-affiliates to be approximately $10,556,000.




Documents
      Incorporated by
      Reference:             None





**Consolidated
      Resources Health Care Fund II**


**Annual
      Report on Form 10-K for the Year Ended December 31, 2006**


**Table
      of Contents**


**Page****PART
                I**Item
                1.
            Business
            1Item
                1A.
            Risk
                Factors
            10Item
                1B.
            Unresolved
                Staff Comments
            14Item
                2.
            Properties
            14Item
                3.
            Legal
                Proceedings
            14Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            15**PART
                II**Item 5.
            Market
                for Units of Limited Partnership Interests, Related Security Holder
                Matters and Issuer Purchases of Equity Securities
            16Item
                6.
            Selected
                Financial Data
            16Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            18Item
                7A.
            Quantitative
                and Qualitative Disclosures about Market Risk
            22Item
                8.
            Financial
                Statements and Supplementary Data
            23Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            23Item 9A.
            Controls
                and Procedures
            24Item 9B.
            Other
                Information
            25**PART
                III**Item
                10.
            Directors,
                Executive Officers and Corporate Governance
            26Item
                11.
            Executive
                Compensation
            26Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Security
                Holder Matters
            26Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            27Item
                14.
            Principal
                Accountant Fees and Services
            27**PART
                IV**Item
                15.
            Exhibits
                and Financial Statement Schedules
            29Signatures
            30Financial
                Statements and Report of Independent Registered Public Accounting
                Firm
            F-1





**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.  As of December 31, 2006, the Partnership had
      two general partners (the “General Partners”), Consolidated Associates II
      (“CA-II”) and WelCare Service Corporation-II which serves as managing general
      partner (“WSC-II” or the “Managing General Partner”).




On
      December 7, 1983, the Partnership offered for sale 15,000 of its Units of
      Limited Partnership Interest (the “Units”).  The 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.  There is no public market for the Units and the
      Partnership does not currently expect that any market will develop. There are
      restrictions upon the transferability of the Units, including the requirement
      that the General Partners consent to any transferee becoming a substituted
      limited partner (which consent may be granted or withheld in the sole discretion
      of the General Partners). In addition, restrictions on transfer may be imposed
      under state securities laws and federal tax laws.




The
      Partnership’s primary business is to own, operate and ultimately dispose of a
      portfolio of health care related real properties for the benefit of its Limited
      Partners.  The Partnership owns a 99.5% general partnership interest
      in Consolidated Resources Health Care Fund II - Mayfair Village, Ltd. (which
      we
      sometimes refer to herein as the “Retirement Facility” or “Mayfair Village”) and
      a 99.5% general partnership interest in Consolidated Resources Health Care
      Fund
      II - Mayfair Nursing Care Center, Ltd. (which we sometimes refer to herein
      as
      the “Nursing Facility” or “Mayfair Nursing Care”).  The remaining .5%
      limited partnership interest in Mayfair Village is owned by Life Care Centers
      of
      America, Inc. (“Life Care”), and the remaining .5% limited partnership interest
      in Mayfair Nursing Care is also owned by Life Care.  The Partnership
      serves as the general partner for both Mayfair Village and Mayfair Nursing
      Care
      and makes all decisions with respect to those entities.




Mayfair
      Village and Mayfair Nursing Care, in turn, own and operate the Retirement
      Facility and Nursing Facility, respectively.  Both of these facilities
      are located in Columbus, Ohio.  Each of the health care facilities is
      treated as a separate reportable segment of the Partnership.  The
      Partnership’s Nursing Facility and Retirement Facility are managed by Life
      Care.  Life Care is owned by Forrest Preston, who also owns 33% of the
      interests in CA-II, our non-managing General Partner.  Life Care
      manages congregate care facilities throughout the United States.  Life
      Care receives a management fee equal to 5% of operating income of each of the
      facilities it manages.  The Managing General Partner provides
      oversight management services for these facilities and receives an oversight
      management fee of 1% of their aggregate operating income.




The
      Nursing Facility has 100 licensed beds in units consisting of either private
      rooms with one bed per room and semi-private rooms with two beds per
      room.  The services provided at the Partnership’s Nursing Facility
      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 Facility owned by the
      Partnership provides apartment living for ambulatory senior citizens who do
      not
      require assistance in their daily activities with additional services provided
      to attract the elderly including limited transportation, housekeeping and food
      services.  The Retirement Facility has 86 units comprised of studio
      apartments and one-bedroom apartments.




The
      Nursing Facility 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 Facility 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




1


order
      to
      provide care and services in conformity with applicable laws, regulations and
      quality and safety standards.  Medicaid payments generally are 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 services, the
      Partnership competes with a number of individuals and entities, including large,
      national nursing home chains and small, locally owned geriatric
      facilities.  Many competing operators have greater financial resources
      than the Partnership or may operate on a nonprofit basis or as charitable
      organizations.   The Partnership believes that the quality of
      care provided, the reputation and physical appearance of its facilities and,
      in
      the case of private pay patients, charges for services, are significant
      competitive factors which add to the success of a facility.  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 continually
      improving the appearance of and the quality of services provided at its
      facilities, establishing a reputation within the local medical community for
      providing competent care services and continually evaluating the needs of the
      community and services offered by other health care providers.




As
      of
      December 31, 2006, the Partnership and its subsidiaries employed 193 employees,
      including administrative, nursing, dietary, social services and maintenance
      personnel.




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 for the last two years at the Partnership’s Nursing
      Facility:







Average
                Daily Census for Year Ended December 31, 2006
            Revenues
                for
              Year
                Ended
              December
                31,
              2006
            Percentages
              of
                Total
              RevenuesNumber
                of Patients/Residents
            Percent
                of Total
              Patients/ResidentsMedicaid
            41.50
            44%
            $2,439,747
            27%Private
                Pay
            23.54
            25%
            1,837,212
            20%Medicare
            21.56
            23%
            3,908,515
            42%HMO/Other1
            7.85
            8%
            1,038,295
            11%Total
            94.45
            100.0%
            $9,223,769
            100.0%


1Other
      revenues include revenues from
      interest on amounts held in reserve accounts, fees for ancillary services,
      such
      as meals and medical supplies, as well as other fee opportunities, such as
      application fees, received in the ordinary course of business of the facilities,
      but not directly related to the number of
      patients/residents.




Average
                Daily Census for Year Ended December 31, 2005
            Revenues
                for
              Year
                Ended
              December
                31,
              2005
            Percentages
              of
                Total
              RevenuesNumber
                of Patients/Residents
            Percent
                of Total
              Patients/ResidentsMedicaid
            39.46
            42%
            $2,253,747
            26%Private
                Pay
            20.95
            22%
            1,588,428
            18%Medicare
            22.60
            24%
            3,477,396
            41%HMO/Other1
            11.88
            12%
            1,243,868
            15%Total
            94.89
            100.0%
            $8,563,439
            100.0%


1Other
      revenues include revenues from interest on amounts held in reserve accounts,
      fees for ancillary services, such as meals and medical supplies, as well as
      other fee opportunities, such as application fees, received in the ordinary
      course of business of the facilities, but not directly related to the number
      of
      patients/residents.




2


Because of regular changes in the 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 overall occupancy rate for the Nursing
      Facility in 2006 was 94.5%, compared with 95% for 2005. The 2006 break-even
      occupancy figure for the Nursing Facility after depreciation and amortization
      is
      estimated to be approximately 75%.  Thus, the Nursing Facility
      exceeded its estimated break-even occupancy level for 2006.




The
      Retirement Facility is much like an apartment complex with additional services
      provided to attract the elderly including limited transportation, housekeeping
      and food services.  During 2006, the Retirement Facility had an
      occupancy rate of 94.5%, compared with 98% for 2005.  The 2006
      break-even occupancy figure for the Retirement Facility after depreciation
      and
      amortization is estimated to be approximately 80%.  Therefore, the
      Retirement Facility exceeded its estimated break-even occupancy level for
      2006.




**Governmental
      Regulation and Reimbursement**




Our
      facilities must comply with numerous federal, state and local statutes and
      regulations.  Also, the healthcare industry depends significantly upon
      federal and federal/state programs for revenues and, as a result, is vulnerable
      to the budgetary policies of both the federal and state
      governments.




*Medicare
      and Medicaid Generally*




The
      Health Insurance for Aged and Disabled Act (Title XVIII of the Social Security
      Act), known as “Medicare,” has made available to nearly every United States
      citizen 65 years of age and older a broad program of health insurance designed
      to help the nation’s elderly meet hospital and other healthcare
      costs.  The Medicare program consists of four parts: (i) Medicare Part
      A, which covers, among other things, inpatient hospital, skilled long-term
      care,
      home healthcare and certain other types of healthcare services; (ii) Medicare
      Part B, which covers physicians’ services, outpatient services and certain items
      and services provided by medical suppliers; (iii) a managed care option for
      beneficiaries who are entitled to Medicare Part A and enrolled in Medicare
      Part
      B, known as Medicare Advantage or Medicare Part C; and (iv) a new Medicare
      Part
      D benefit that became effective in 2006 covering prescription
      drugs.  The Medicare program is administered by the Centers for
      Medicare and Medicaid Services (CMS).




Medicaid
      (Title XIX of the Social Security Act) is a federal-state matching program,
      whereby the federal government, under a need based formula, matches funds
      provided by the participating states for medical assistance to “medically
      indigent” persons.  The programs are administered by the applicable
      state welfare or social service agencies under federal
      rules.  Although Medicaid programs vary from state to state,
      traditionally they have provided for the payment of certain expenses, up to
      established limits, at rates determined in accordance with each state’s
      regulations.  For skilled nursing centers, most states pay prospective
      rates, and have some form of acuity adjustment. In addition to facility based
      services, most states cover an array of medical ancillary
      services.  Payment methodologies for these services vary based upon
      state preferences and practices permitted under federal rules.




State
      Medicaid programs generally have long-established programs for reimbursement
      which have been revised and refined over time.  Any future changes in
      such reimbursement programs or in regulations relating thereto, such as
      reductions in the allowable reimbursement levels or the timing of processing
      of
      payments, could adversely affect our business.  The annual increase in
      the federally matched funds could vary from state to state based on a variety
      of
      factors.  Additionally, any shift from Medicaid to state designated
      managed care plans could adversely affect our business.




Medicare
      and Medicaid are subject to statutory and regulatory changes, retroactive rate
      adjustments, administrative rulings and government funding restrictions, all
      of
      which may materially affect the timing and/or levels of payments to us for
      our
      services.  We are subject to periodic audits by the Medicare and
      Medicaid programs, which have various rights and remedies against us if they
      assert that we have overcharged the programs or failed to comply with program
      requirements.  These rights and remedies may include requiring the
      repayment of any amounts alleged to be overpayments or in violation of program
      requirements, or making deductions from future amounts due to
      us.  Such




3


programs
      may also impose fines, criminal penalties or program
      exclusions.  Other third-party payer sources also reserve rights to
      conduct audits and make monetary adjustments in connection with or inclusive
      of
      auditing activities.




*Laws
      Affecting Medicare Revenues*




Participating
      skilled nursing facilities are reimbursed under a prospective payment system
      (PPS) for inpatient Medicare covered services.  The prospective
      payment system commenced with a facility’s first cost reporting period beginning
      on or after July 1, 1998 and phased in over a three-year
      period.  Under the prospective payment system, or PPS, skilled nursing
      facilities are paid a predetermined amount per patient, per day or “per diem”,
      based on the anticipated costs of treating patients.  The per diem
      rate is determined by classifying each patient into one of 53 resource
      utilization groups using the information gathered as a result of each patient’s
      minimum data set assessment.  There is a separate per diem rate for
      each of the resource utilization group classifications.  The per diem
      rate also covers rehabilitation and non-rehabilitation ancillary
      services.




As
      implemented by CMS, the prospective payment system has had an adverse impact
      on
      the Medicare revenues of many skilled nursing facilities.  There have
      been three primary problems.  First, the base year calculations
      understate costs.  Second, the market basket index used to trend
      payments forward does not adequately reflect market
      experience.  Third, the resource utilization group case mix allocation
      is not adequately predictive of the costs of care for patients, and does not
      equitably allocate funding, especially for non-therapy ancillary
      services.




Congress
      has enacted five major laws during the past decade that have significantly
      altered payment for skilled nursing facilities and medical ancillary
      services.  The Balanced Budget Act, signed into law on August 5, 1997,
      reduced federal spending on Medicare and Medicaid programs.  The
      Medicare Balanced Budget Refinement Act, enacted in November 1999, addressed
      a
      number of the funding difficulties caused by the Balanced Budget
      Act.  The Benefits Improvement and Protection Act, enacted on December
      15, 2000, further modified the law and restored additional
      funding.  The Jobs and Growth Tax Reconciliation Act of 2003, enacted
      on May 28, 2003, provided temporary fiscal relief to states through an increase
      in federal support.  This temporary increase in Federal support has
      helped stabilize state Medicaid programs.  The Medicare Modernization
      Act, enacted on December 8, 2003, created a new Medicare prescription drug
      benefit, created incentives for greater private competition within Medicare,
      adjusted coverage and payment terms for a number of providers and prescription
      drugs and reformed the administration of the Medicare benefit. The following
      is
      a brief summary of these laws.




In
      November 1999, the Balanced Budget Refinement Act was passed in
      Congress.  This enactment provided relief for certain reductions in
      Medicare reimbursement caused by the Balanced Budget Act.  For covered
      skilled nursing facility services furnished on or after April 1, 2000, the
      Medicare per diem rate was increased by 20% for 15 resource utilization group
      payment categories, which we refer to as “payment add-ons.” While this provision
      was initially expected to adjust payment rates for only six months, CMS withdrew
      proposed resource utilization group refinement rules.  Following
      completion of its study of the skilled nursing payment system, CMS published
      updates which were effective October 1, 2005.  The updates resulted in
      the discontinuance of these payment add-ons for dates of service beginning
      on or
      after January 1, 2006.   The updates also resulted in the
      addition of nine new resource utilization groups beginning January 1,
      2006.




On
      December 15, 2000, Congress passed the Benefits Improvement Protection Act,
      increasing the nursing component of federal prospective payment system’s rates
      by approximately 16.7% for the period from April 1, 2001 through September
      30,
      2002.  The legislation also changed the 20% add-on to 3 of the 14
      rehabilitation resource utilization group categories to a 6.7% add-on to all
      14
      rehabilitation resource utilization group categories beginning April 1, 2001.
      The Medicare Part B consolidated billing provision of the Balance Budget
      Refinement Act was repealed except for Medicare Part B therapy services and
      the
      moratorium on implementing $1,500 payment caps (therapy caps) on Medicare Part
      B
      rehabilitation therapy services was extended through calendar year
      2002.   The 6.7% add-ons for all rehabilitation resource
      utilization group categories was discontinued effective January 1,
      2006.




A
      number
      of provisions of the Balanced Budget Refinement Act and the Benefits Improvement
      and Protection Act, providing additional funding for Medicare participating
      skilled nursing facilities, expired on September 30, 2002 resulting in an
      approximate 10% reduction in the rates paid to us for providing services to
      Medicare patients.  We refer to




4


the
      expiration of the additional funding as the “skilled nursing facility Medicare
      cliff.”  Effective October 1, 2002, Medicare rates adjusted for the
      skilled nursing facility Medicare cliff were increased by a 2.6% annual
      inflation update factor.




The
      final
      fiscal year 2004 prospective payment system rules for skilled nursing facilities
      became effective on October 1, 2003.  The final rules enhanced the
      reimbursement rates for fiscal year 2004 by increasing base rates by 6.26%
      (a 3%
      increase in the annual inflation update factor and a 3.26% upward adjustment
      correcting previous forecast errors).  The final rules also provided
      for the continuation through fiscal year 2004 of certain payment add-ons that
      were authorized in the Balanced Budget Refinement Act to compensate for
      non-therapy ancillaries.




On
      July
      30, 2004, CMS published notice of the fiscal year 2005 prospective payment
      system rates that became effective October 1, 2004.  The fiscal year
      2005 rules provided for a 2.8% increase in the annual inflation update
      factor.




The
      Medicare Modernization Act suspended application of the $1,500 payment caps
      (therapy caps) on Medicare Part B rehabilitation through December 31,
      2005.  The therapy caps in place effective September 1, 2003 imposed
      payment limits to services provided by independent therapists as well as to
      those provided by outpatient rehabilitation facilities and other forms of
      rehabilitation agencies.  The suspension did not have retroactive
      impact upon Medicare beneficiaries who exceeded their caps between September
      1,
      2003 and December 8, 2003.  Despite a widespread bipartisan effort to
      have the therapy caps legislation repealed or additional moratoriums put in
      place, on January 1, 2006 a cap of $1,740 (adjusted for inflation) went into
      effect for these health care services.  In response to lobbying
      efforts, however, Congress included a provision in the Deficit Reduction Act
      of
      2005 to provide beneficiaries with a clinically based exceptions process to
      the
      financial limitation on rehabilitation services under Medicare.  The
      exceptions process initially was to have applied to the 2006 fiscal year only
      but has been extended through December 31, 2007.




*Laws
      Affecting Medicaid Revenues*




The
      Balanced Budget Act of 1997 repealed the “Boren Amendment” federal payment
      standard for payments to Medicaid nursing facilities, effective October 1,
      1997.  This repeal gave the states greater latitude in setting payment
      rates for nursing facilities.  Budget constraints and other factors
      have caused some states to curb Medicaid reimbursement to nursing facilities
      and
      states may continue to curb or delay payments to nursing facilities in the
      future.  The law also granted the states greater flexibility in
      establishing Medicaid managed care programs without the need to obtain a federal
      waiver.  Although these waiver programs generally exempted
      institutional care, including nursing facility services, these programs could
      ultimately change the Medicaid reimbursement system for long-term
      care.  These changes could include changing reimbursement for pharmacy
      services from fee-for-service, or payment per procedure or service rendered,
      to
      a fixed amount per person utilizing managed care negotiated or capitated
      rates.




The
      Benefits Improvement and Protection Act of 2000 enacted a phase out of
      intergovernmental transfer transactions by states whereby states would
      artificially inflate the payments to certain public facilities to increase
      federal matching funds.  This action may have had the effect of
      reducing federal support for a number of state Medicaid programs.  The
      reduced federal payments may impact aggregate available funds requiring states
      to further contain payments to providers.




State
      budget pressures in recent years have translated into reductions in the rate
      of
      state spending growth in certain jurisdictions.  The plight of state
      governments has helped to elevate issues related to Medicaid onto the national
      agenda.  In 2003, Congress passed temporary relief to states providing
      a 2.9% increase in the federal Medicaid Assistance Percentage for five quarters
      estimated to provide states $10.0 billion in Medicaid relief.  That
      assistance terminated on June 30, 2004.  Actions to date on state
      Medicaid budgets affirm that many states are adjusting downward state Medicaid
      spending to reflect the loss of the temporary federal
      assistance.  Medicaid funding is set annually.




As
      part
      of the state budget process, a number of states have indicated a desire to
      divert individuals from placement in nursing homes through an expansion of
      home
      and community based services.  Most of these efforts are being
      established under demonstration and waiver authority.  To date, these
      alternative care programs have not significantly impacted nursing home
      admissions.




5


Late
      in
      November 2003, the General Accounting Office released a study examining how
      nursing home reimbursement has been affected by the fiscal crisis being
      experienced by a number of states.  The report documents that most
      states have sustained their reimbursement commitments.  States have
      tapped reserves, tobacco settlement monies and other funding strategies
      including provider assessments to meet their obligations.  Similar
      conclusions were reached by an academic study published in June 2004 in Health
      Affairs.  While the data in both studies does not evaluate the
      adequacy of state Medicaid payments for nursing facility services, the analysis
      does suggest that under current difficult conditions states are honoring their
      commitments.




Among
      the
      alternative Medicaid funding approaches that states have explored are nursing
      home provider assessments as tools for leveraging increased Medicaid matching
      funds.  Such initiatives are authorized under the law.




It
      is not
      possible to quantify fully the effect of legislative changes, the interpretation
      or administration of such legislation or any other governmental initiatives
      on
      our business.  Accordingly, there can be no assurance that the impact
      of any future healthcare legislation or regulation will not further adversely
      affect our business.  There can be no assurance that payments under
      governmental and private third-party payer programs will be timely, will remain
      at levels similar to present levels or will, in the future, be sufficient to
      cover the costs allocable to patients eligible for reimbursement pursuant to
      such programs.  Our financial condition and results of operations are
      affected by the reimbursement process, which in the healthcare industry is
      complex and can involve lengthy delays between the time that revenue is
      recognized and the time that reimbursement amounts are settled.




*Government
      Regulation in General*




In
      addition to regulations relating to participation in the Medicare and Medicaid
      programs, our business is subject to extensive federal, state and, in some
      cases, local regulation with respect to matters such as licensure, certification
      and government reimbursement.  These regulations relate, among other
      things, to the adequacy of physical plant and equipment, qualifications of
      personnel, standards of care and operational requirements.  Compliance
      with such regulatory requirements, as interpreted and amended from time to
      time,
      can increase operating costs and thereby adversely affect the financial
      viability of our business.  Failure to comply with current or future
      regulatory requirements could also result in the imposition of various remedies
      including fines, restrictions on admission, denial of payment for all or new
      admissions, the revocation of licensure, decertification, imposition of
      temporary management or the closure of the facility.




*Licensure,
      Certification and Regulation*




Our
      assisted living and nursing home services, to the extent required, are currently
      licensed under applicable law.  Our skilled nursing centers and
      healthcare services, or practitioners providing the services therein, are
      certified or approved as providers under one or more of the Medicaid and
      Medicare programs.  Licensing, certification and other applicable
      standards vary from jurisdiction to jurisdiction and are revised
      periodically.




Both
      initial and continuing qualifications of a skilled nursing center to participate
      in such programs depend upon many factors including accommodations, equipment,
      services, patient care, safety, personnel, physical environment, and adequate
      policies, procedures and controls.   Several states have adopted
      certificate of need or similar laws which generally require that a state agency
      approve certain acquisitions and determine the need for certain bed additions,
      new services, and capital expenditures.  State approvals are generally
      issued for a specified maximum expenditure and require implementation of the
      proposal within a specified period of time.  Failure to obtain the
      necessary state approval can result in:




·           the
      inability to provide the service;


·           the
      inability to operate the centers;


·           the
      inability to complete the acquisition, addition or other change;
      and


·           the
      imposition of sanctions or adverse action on the center’s license and adverse
      reimbursement action.




During
      recent years several states have passed legislation altering their certificate
      of need requirements.  California and Texas, for example, have
      eliminated certificate of need laws. Virginia is expected to phase out
      its




6


certificate
      of need requirement and Maryland is studying a similar action.  Even
      states that have eliminated certificate of need laws often have retained other
      means of limiting new nursing home development, such as the use of moratoria,
      licensing laws or limitations upon participation in the state Medicaid program.
      While Ohio has not made changes to its certificate of need requirement to date,
      we believe that these governmental limitations generally make nursing homes
      more
      valuable by limiting competition.  We can give no assurance that the
      State of Ohio will not change its certificate of need requirements in the
      future.




*Survey
      and Enforcement*




CMS
      has
      begun to implement an initiative to increase the effectiveness of Medicare
      and
      Medicaid nursing facility survey and enforcement activities. CMS’ initiative
      follows a July 1998 General Accounting Office investigation which found
      inadequate care in a significant proportion of California nursing homes and
      the
      CMS’ July 1998 report to Congress on the effectiveness of the survey and
      enforcement system. In 1999, the U.S. Department of Health and Human Services
      Office of Inspector General issued several reports concerning quality of care
      in
      nursing homes, and the General Accounting Office issued reports in 1999 and
      2000
      which recommended that CMS and the states strengthen their compliance and
      enforcement practices to better ensure that nursing homes provide adequate
      care.
      Since 1998, the Senate Special Committee on Aging has held hearings on these
      issues. CMS is taking steps to focus more survey and enforcement efforts on
      nursing homes with findings of substandard care or repeat violations of Medicare
      and Medicaid standards and to identify chain operated facilities with patterns
      of noncompliance. CMS is increasing its oversight of state survey agencies
      and
      requiring state agencies to use enforcement sanctions and remedies more promptly
      when substandard care or repeat violations are identified, to investigate
      complaints more promptly, and to survey facilities more consistently. In
      addition, CMS has adopted regulations expanding federal and state authority
      to
      impose civil money penalties in instances of noncompliance. Medicare survey
      results and nursing staff hours per resident for each nursing home are posted
      on
      the internet at www.medicare.gov.  As
      noted above, when deficiencies under state licensing and Medicare and Medicaid
      standards are identified, sanctions and remedies such as denials of payment
      for
      new Medicare and Medicaid admissions, civil monetary penalties, state oversight
      and loss of Medicare and Medicaid participation or licensure may be
      imposed.  If our Nursing Facility is unable to cure deficiencies which
      are identified from time to time, such sanctions may be imposed, and if imposed,
      may adversely affect our financial condition.




In
      2000
      and 2002, CMS issued reports on its study linking nursing staffing levels with
      quality of care, and CMS is assessing the impact that minimum staffing
      requirements would have on facility costs and operations. In a report presented
      to Congress in 2002, the Department of Health and Human Services found that
      90%
      of nursing homes lack the nurse and nurse aide staffing necessary to provide
      adequate care to residents. The Bush administration has indicated that it does
      not intend to impose minimum staffing levels or to increase Medicare or Medicaid
      rates to cover the costs of increased staff at this time, but CMS is now
      publishing the nurse staffing level at each nursing home on its internet site
      to
      increase market pressures on nursing home operators.  Based on the
      latest information published by CMS as of the date of this Report, our Nursing
      Facility had 1.53 licensed nursing staff hours per resident per day
      (“NSH/Resident/Day”), lower than the 1.70 NSH/Resident/Day average for the State
      of Ohio and slightly higher than the 1.50 NSH/Resident/Day average
      nationally.




*Laws
      Affecting Billing and Business Practices*




We
      are
      also subject to federal and state laws that govern financial and other
      arrangements between healthcare providers.  These laws often prohibit
      certain direct and indirect payments or fee-splitting arrangements between
      healthcare providers that are designed to induce the referral of patients to,
      or
      the recommendation of, a particular provider for medical products and
      services.  These laws include:




·
            the
                “anti –kickback” provisions of the federal Medicare and Medicaid programs,
                which prohibit, among other things, knowingly and willfully soliciting,
                receiving, offering or paying any remuneration (including any kickback,
                bribe or rebate) directly or indirectly in return for or to induce
                the
                referral of an individual to a person for the furnishing or arranging
                for
                the furnishing of any item or service for which payment may be made
                in
                whole or in part under Medicare or Medicaid.  Penalties may
                include imprisonment, fines, exclusion from participation in the
                Medicare
                and Medicaid programs and loss of license;
                and




7


·
            the
                “Stark laws” which prohibit, with limited exceptions, the referral of
                patients by physicians for certain services, including home health
                services, physical therapy and occupational therapy, to an entity
                in which
                the physician has a financial interest.  Penalties may include
                denial of payment, mandatory refund of prior payment, civil monetary
                penalties and exclusion from participation in the Medicare and Medicaid
                programs.




In
      addition, some states restrict certain business relationships between physicians
      and other providers of healthcare services.  Possible sanctions for
      violation of any of these restrictions or prohibitions include loss of licensure
      or eligibility to participate in reimbursement programs and civil and criminal
      penalties.  These laws vary from state to state, are often complex and
      have seldom been interpreted by the courts or regulatory agencies.




There
      have also been a number of recent federal and state legislative and regulatory
      initiatives concerning reimbursement under the Medicare and Medicaid
      programs.  During the past few years, the Department of Health and
      Human Services, or DHHS, has issued a series of voluntary compliance
      guidelines.  These compliance guidelines provide guidance on
      acceptable practices.  Skilled nursing facility services and durable
      medical equipment, prosthetics, orthotics, supplies, and supplier performance
      practices have been among the services addressed in these
      publications.  DHHS also issues fraud alerts and advisory
      opinions.  For example, directives concerning double billing, home
      health services, the provision of medical supplies to nursing facilities, and
      contractual joint venture relationships have been released.  It is
      anticipated that areas addressed by these advisories may come under closer
      scrutiny by the government.  While we have reviewed government
      guidance, we cannot predict accurately the impact of any such
      initiatives.




*Laws
      Governing Health Information*




We
      face
      additional federal requirements that mandate major changes in the transmission
      and retention of health information.  The Health Insurance Portability
      and Accountability Act of 1996, or HIPAA, was enacted to ensure, first, that
      employees can retain and at times transfer their health insurance when they
      change jobs, and secondly, to simplify healthcare administrative
      processes.  This simplification includes expanded protection of the
      privacy and security of personal medical data and requires the adoption of
      standards for the exchange of electronic health information.  Among
      the standards that DHHS has or may adopt pursuant to HIPAA are standards for
      the
      following: electronic transactions and code sets, unique identifiers for
      providers, employers, health plans and individuals, security and electronic
      signatures, privacy, and enforcement.




Although
      HIPAA was intended to ultimately reduce administrative expenses and burdens
      faced within the healthcare industry, we believe that implementation of this
      law
      has resulted in additional costs.  DHHS has released three rules to
      date mandating the use of new standards with respect to certain healthcare
      transactions and health information.  The first rule establishes
      uniform standards for common healthcare transactions, including: healthcare
      claims information; plan eligibility, referral certification and authorization;
      claims status; plan enrollment and disenrollment; payment and remittance advice;
      plan premium payments; and coordination of benefits.  Second, DHHS has
      released standards relating to the privacy of individually identifiable health
      information.  These standards not only require our compliance with
      rules governing the use and disclosure of protected health information, but
      they
      also require us to impose those rules, by contract, on any business associate
      to
      whom we disclose information.  Third, DHHS has released rules
      governing the security of health information maintained or transmitted in
      electronic form.




DHHS
      finalized the transaction standards on August 17, 2000.  DHHS issued
      the privacy standards on December 28, 2000, and, after certain delays, they
      became effective on April 14, 2001, with a compliance date of April 14,
      2003.  On February 20, 2003, DHHS issued final rules governing the
      security of health information.  These rules specify a series of
      administrative, technical and physical security procedures to assure the
      confidentiality of electronic protected health information.  Affected
      parties had until April 20, 2005 to be fully compliant.  Sanctions for
      failing to comply with HIPAA health information practices provisions include
      criminal penalties and civil sanctions.  In January 2004, CMS
      announced the adoption of the National Provider Identifier as the standard
      unique health identifier for health care providers to use in filing and
      processing health care claims and other transactions.  The rule was
      effective May 23, 2005.




8


At
      this
      time, our management believes we are in compliance with all HIPAA requirements
      that have been adopted.




*Assisted
      Living*




According
      to the National Academy for State Health Policy, approximately 41 states provide
      or are approved to provide Medicaid payments for residents in some assisted
      living facilities under waivers granted by CMS, or under Medicaid state plans,
      and four other states are planning some Medicaid funding by preparing or
      requesting waivers to fund assisted living or demonstration
      projects.  Because rates paid to assisted living facility operators
      are lower than rates paid to nursing home operators, some states use Medicaid
      funding of assisted living as a means of lowering the cost of services for
      residents who may not need the higher intensity of health-related services
      provided in nursing homes.  States that administer Medicaid programs
      for assisted living facilities are responsible for monitoring the services
      at,
      and physical conditions of, the participating facilities.  Different
      states apply different standards in these matters, but generally we believe
      these monitoring processes are similar to the inspection processes mandated
      by
      these states for nursing homes.  Ohio currently does not provide
      Medicaid funding for assisted living facilities.




In
      light
      of the large number of states using Medicaid to purchase services at assisted
      living facilities and the growth of assisted living in the 1990s, a majority
      of
      states have adopted licensing standards applicable to assisted living
      facilities. According to the National Academy for State Health Policy, 32 states
      and the District of Columbia have licensing statutes or standards specifically
      using the term “assisted living”. Thirty-six states have requirements for
      facilities servicing people with Alzheimer’s disease or dementia. The majority
      of states have revised their licensing regulations recently or are reviewing
      their policies or drafting or revising their regulations. State regulatory
      models vary; there is no national consensus on a definition of assisted living,
      and no uniform approach by the states to regulating assisted living
      facilities.   The State of Ohio, for example, regulates
“residential care facilities” and permits them to provide to residents, in
      addition to accommodations, supervision and personal care services, supervision
      of special diets, limited administration of medication and other skilled nursing
      care on a part-time, intermittent basis.




Most
      state licensing standards apply to assisted living facilities whether or not
      they accept Medicaid funding. Also, according to the National Academy for State
      Health Policy, six states require certificates of need from state health
      planning authorities before new assisted living facilities or programs may
      be
      developed. Based on our analysis of current economic and regulatory trends,
      we
      believe that assisted living facilities that become dependent upon Medicaid
      payments for a majority of their revenues may decline in value because Medicaid
      rates may fail to keep up with increasing costs. We also believe that assisted
      living facilities located in states that adopt certificate of need requirements,
      such as Ohio, or otherwise restrict the development of new assisted living
      facilities may increase in value because these limitations upon development
      may
      help ensure higher occupancy and higher non-governmental rates.




**Environmental
      Matters**




Under
      various laws, owners of real estate may be required to investigate and clean
      up
      hazardous substances present at a property, and may be held liable for property
      damage or personal injuries that result from such contamination. These laws
      also
      expose us to the possibility that we become liable to reimburse the government
      for damages and costs it incurs in connection with the contamination. No
      assurances can be given that environmental liabilities are not present in our
      properties or that costs we incur to remediate contamination will not have
      a
      material adverse effect on our business or financial condition.




**Competition**




The
      Partnership operates only two facilities, the Retirement Facility which is
      an
      assisted living facility and the Nursing Facility.  Therefore, many of
      the Partnership’s competitors have more significant resources and assets
      available to them with which to compete with the Partnership’s
      facilities.  Generally, quality of services and degree of care
      available, 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 a facility.  The Partnership
      attempts to compete with its larger competitors through active marketing
      targeted to the population it desires for its facilities.  Further,
      the Partnership believes that restrictions on the ability of new facilities
      to
      be opened create barriers that enhance its ability to compete in




9


its
      markets.  However, no assurance can be given that the Partnership will
      be able to continue to effectively compete given its small size.




**Recent
      Developments**




A
      special meeting of the limited
      partners of  the Partnership was held on January 11,
      2007.  The limited partners were asked to approve (i) a proposal
      submitted by Kodiak Partners III, Prizm Investors and Baseline Investors to
      authorize a sale of Partnership assets, liquidation and dissolution through
      a
      proposed amendment to the Partnership Agreement for the Partnership and (ii)
      a
      proposal submitted by the Managing General Partner to amend certain provisions
      of the Partnership Agreement that pertain to distributions to the partners
      and
      allocations of profits and losses with respect to a sale or
      refinancing.  Each of these proposals were approved by holders of a
      majority of the outstanding Limited Partnership Units.




As
      contemplated by the approved
      amendments, the Managing General Partner solicited bids from three marketing
      agents with experience in the healthcare industry.  Based on the bids
      received, the Managing General Partner entered into an agency agreement with
      Marcus & Millichap Real Estate Investment Brokerage Company of Ohio on May
      7, 2007.  Marcus & Millichap has been actively pursuing potential
      purchasers for the two Ohio facilities over the past two
      months.  Preliminary sealed bids are expected by July
      31st.  Based on the bids received, those parties tendering approved
      bids will be invited to participate in a subsequent round of bidding following
      a
      prescribed due diligence period.  We expect that a transaction with
      the successful bidder will be consummated during the fourth quarter of
      2007.







**ITEM
      1A.                      RISK
      FACTORS**




Our
      business and results of operations are subject to a number of risks, many of
      which are outside of our control.  In addition to the other
      information in this Report, readers should carefully consider that the following
      important factors, among others, could materially impact our business and future
      results of operations.  When we use terms such as “we,” “our”, and
“us,” we are referring to Consolidated Resources Health Care Fund II, and its
      subsidiaries Consolidated Resources Health Care Fund II -
      Mayfair****Village, Ltd. and Consolidated Resources Health
      Care Fund II - Mayfair Nursing Care Center, Ltd.  The risks described
      below may not be the only risks we face. Additional risks that we do not yet
      know of, or that we currently think are immaterial, may also impair our business
      operations or financial results. If any of the events or circumstances described
      in the following risks actually occurs, our business, financial condition or
      results of operations could suffer and the trading price of our common shares
      could decline. Investors should consider the following risks and the information
      contained under the heading “Cautionary Notice Regarding Forward Looking
      Statements” before deciding to invest in our securities.




*The
      nature of our business exposes us to litigation risks. As a result, our
      insurance costs may increase.*





In
      several well publicized instances,
      private litigation by residents of senior living communities for alleged abuses
      has resulted in large damage awards against other operating companies. Today,
      some lawyers and law firms specialize in bringing litigation against senior
      living companies. Medical liability insurance reform has become a topic of
      political debate and some states have enacted legislation to limit future
      liability awards. However, unless such reforms are generally adopted, we expect
      our insurance costs may increase.  Increasing liability insurance
      costs may materially negatively affect our results of operations.





*Our
      business is subject to extensive regulation which increases our costs and may
      result in losses.*





Licensing
      and Medicare and Medicaid
      laws require operators of senior living facilities to comply with extensive
      standards governing operations. There are also various laws prohibiting fraud
      by
      senior living operators, including criminal laws that prohibit false claims
      for
      Medicare and Medicaid and that regulate patient referrals. In recent years,
      the
      federal and state governments have devoted increased resources to monitoring
      the
      quality of care at senior living communities and to anti-fraud investigations.
      When quality of care deficiencies are identified or improper billing is
      uncovered, various sanctions may be imposed, including denial of new admissions,
      exclusion from Medicare or Medicaid program participation, monetary penalties,
      governmental oversight or loss of licensure.  As a result of this
      extensive regulatory system and increasing enforcement initiatives, we have
      increased our costs of monitoring quality of care


10


compliance
      and billing procedures, and we expect these costs may continue to increase.
      Also, if we become subject to regulatory sanctions, our business may be
      adversely affected and we might experience financial losses.





*We
      depend upon reimbursement for our services by third-party payors, and changes
      in
      their reimbursement levels could adversely affect our revenues, results of
      operations and financial position.*





Approximately
      56% of our 2006 revenues
      were derived from governmental third-party payors with the remainder being
      derived from commercial insurers, managed care plans, the Department of Veteran
      Affairs and private individuals. There are ongoing pressures from many payors
      to
      control healthcare costs and to reduce or limit increases in reimbursement
      rates
      for medical services.  Governmental payment programs are subject to
      statutory and regulatory changes, retroactive rate adjustments, administrative
      or executive orders and government funding restrictions, all of which may
      materially change the amount of payments to us for our services.





In
      addition, some of our operations,
      especially our Nursing Facility, receive significant revenues from the Medicare
      and Medicaid programs. During the year ended December 31, 2006, approximately
      69% of our revenues from residents were received from these programs. The
      federal government and some states are now experiencing fiscal deficits.
      Historically, when governmental deficits have increased, cut backs in Medicare
      and Medicaid funding have often followed. These cut backs sometimes include
      rate
      reductions, but more often result in a failure of Medicare and Medicaid rates
      to
      increase by sufficient amounts to offset increasing costs. We cannot now predict
      whether future Medicare and Medicaid rates will be sufficient to cover our
      future cost increases. Future Medicare and Medicaid rate declines or a failure
      of these rates to cover increasing costs could result in our experiencing lower
      earnings or losses.  *See “Business – Governmental Regulation and
      Reimbursement”.*





*A
      significant increase in our labor costs may have a material adverse effect
      on
      us.*





We
      compete with other operators of
      senior living communities with respect to attracting and retaining qualified
      personnel responsible for the day to day operations of each of our facilities.
      A
      shortage of nurses or other trained personnel may require us to increase the
      wages and benefits offered to our employees in order to attract and retain
      these
      personnel or to hire more expensive temporary personnel. Also, we have to
      compete for lesser skilled workers with numerous other employers.  A
      tightening job market often results in increased wage pressures. Although we
      have not yet experienced any recent significant wage pressures, such wage
      pressures may occur in the near future. Employee benefits costs, including
      employee health insurance and workers compensation insurance costs, have
      increased in recent years. Increasing employee health and workers compensation
      insurance costs may materially negatively affect our earnings. No assurance
      can
      be given that our labor costs will not increase or that any increase will be
      matched by corresponding increases in rates charged to residents. Any
      significant failure by us to control our labor costs or to pass on any increased
      labor costs to residents through rate increases could have a material adverse
      effect on our business, financial condition and results of
      operations.





*Our
      business may require regular capital expenditures.*





Physical
      characteristics of senior
      living facilities are mandated by various governmental authorities. Changes
      in
      these regulations may require us to make significant expenditures. In the
      future, our facilities may require significant expenditures to address ongoing
      required maintenance and to make them attractive to residents. Our available
      financial resources may be insufficient to fund these expenditures.





*Our
      business is highly competitive and we may be unable to operate
      profitably.*





We
      compete with numerous other
      companies that provide senior living services, including home healthcare
      companies and other real estate based service providers. Historically, nursing
      homes have been somewhat protected from competition by state laws requiring
      certificates of need to develop new communities; however, these barriers have
      been eliminated in many states. Also, there are few barriers to competition
      for
      home healthcare or for independent and assisted living services. Growth in
      the
      availability of nursing home alternatives, including assisted living
      communities, has had and may in the future have the effect of reducing the
      occupancy or profitability at nursing homes, including those we operate. Many
      of
      our existing competitors are larger and have greater financial resources than
      us. Accordingly, we cannot provide any assurances that we will be able to
      attract a sufficient number of residents to our facilities or that we will
      be


11


able
      to
      attract employees and keep wages and other employee benefits, insurance costs
      and other operating expenses at levels which will allow us to compete
      successfully or to operate profitably.





*Failure
      to comply with existing environmental laws regarding the management of
      infectious medical waste could harm our business.*





Environmental
      laws are amended from
      time to time and vary from state to state. Our facilities can generate
      infectious medical waste due to the illness or physical condition of our
      residents, including for example, blood soaked bandages, swabs, and other
      medical waste products and incontinence products of those residents diagnosed
      with an infectious disease. The management of infectious medical waste,
      including handling, storage, transportation, treatment and disposal, is subject
      to regulation under various laws, including federal and state environmental
      laws. These environmental laws prescribe a number of requirements, including
      record-keeping, notice and reporting obligations. Each of our facilities have
      an
      agreement with a waste management company for the proper disposal of all
      infectious medical waste. Any finding that we are not in compliance with these
      environmental laws could adversely affect our business operations.





*We
      face periodic reviews, audits and investigations under our contracts with
      federal and state government agencies, and these audits could have adverse
      findings that may negatively impact our business.*





As
      a result of our participation in the
      Medicare and Medicaid programs, we are subject to various governmental reviews,
      audits and investigations to verify our compliance with these programs and
      applicable laws and regulations. Private pay sources also reserve the right
      to
      conduct audits. An adverse review, audit or investigation could result
      in:





·
            required
                refunding of amounts we have been paid pursuant to the Medicare or
                Medicaid programs or from private
                payors;




·
            state
                or federal agencies imposing fines, penalties and other sanctions
                on
                us;




·
            loss
                of our right to participate in the Medicare or Medicaid programs
                or one or
                more private payor networks; or




·
            damages
                to our reputation in various
                markets.




Both
      federal and state government agencies have heightened and coordinated civil
      and
      criminal enforcement efforts as part of numerous ongoing investigations of
      healthcare companies and, in particular, skilled nursing facilities. The focus
      of these investigations includes:





·
            cost
                reporting and billing practices;




·
            quality
                of care;




·
            financial
                relationships with referral sources;
                and




·
            medical
                necessity of services provided.




We
      also
      are subject to potential lawsuits under a federal whistleblower statute designed
      to combat fraud and abuse in the healthcare industry. These lawsuits can involve
      significant monetary and award bounties to private plaintiffs who successfully
      bring these suits.





*We
      are required to comply with laws governing the transmission and privacy of
      health information.*





The
      Health Insurance Portability and
      Accountability Act of 1996, or HIPAA, requires us to comply with standards
      relating to the privacy of protected health information, the exchange of health
      information within our company and with third parties and protect the
      confidentiality and security of electronic protected health information. The
      privacy


12


standards
      became effective in April 2003, standards for electronic data transactions
      and
      code sets became effective in October 2003, and security of health information
      became effective in April 21, 2005. Our ability to comply with the transaction
      and security standards is, in part, dependent upon third parties, including
      the
      fiscal intermediaries and state program payors also complying with HIPAA. We
      do
      not believe our on-going implementation to comply with the HIPAA standards
      will
      have a material impact on us. Should it be determined that we have not complied
      with the new standards, we could be subject to civil sanctions.





*If
      we
      do not achieve and maintain competitive quality of care ratings from CMS in
      our
      skilled nursing facilities our business may be negatively
      affected.*





CMS
      provides comparative data available
      to the public on its website rating every nursing facility operating in each
      state based upon nine quality-of-care indicators. These quality-of-care
      indicators include such measures as percentages of patients with infections,
      bedsores and unplanned weight loss. We currently monitor the comparative data
      posted on the website to respond to potential consumers should questions arise.
      If we are unable to achieve quality of care ratings that are comparable or
      superior to those of our competitors, our ability to attract and retain patients
      could be affected and, as a result, our occupancy levels could
      decline.





*Our
      revenues are sensitive to occupancy levels and changes in the resident
      mix.*





With
      respect to our Nursing Facility,
      changes in the case mix of residents, the mix of residents by payor type and
      payment methodologies may significantly affect our profitability. The sources
      and amounts of our nursing facility resident revenues will be determined by
      a
      number of factors, including licensed bed capacity and occupancy rates of our
      Nursing Facility, average length of stay of our residents, the mix of residents
      by payor type (for example, Medicare versus Medicaid or private), and, within
      the Medicare and certain Medicaid programs, the distribution of residents
      assessed within the RUGs. Changes that increase the percentage of Medicaid
      residents within our facilities can have a material adverse effect on our
      financial operations.





With
      respect to our Retirement
      Facility, changes in the percentage of private residents, the level of care
      services, and, where applicable, Medicaid rates, may significantly affect our
      profitability. The sources and amounts of our Retirement Facility resident
      revenues will be determined by a number of factors, including licensed unit
      capacity and occupancy rates at our Retirement Facility, average length of
      stay
      of our residents, the mix of private versus Medicaid funded residents, and
      the
      level of care services required for our residents. Where residents pay
      privately, the income and assets of our residents and their family members
      can
      impact our private pay revenues. Economic downturns or changes in demographics
      could adversely affect the ability of seniors to afford our daily resident
      fees.
      If we are unable to attract seniors with sufficient income, assets or other
      resources, our resident revenues and results of operations may decline. An
      increase in the percentage of Medicaid residents within our facilities could
      have a material adverse effect on our financial operations.





*If
      we
      fail to cultivate new or maintain existing relationships with the physicians
      in
      the community in which we operate, our patient base in our facilities may
      decrease.*





Our
      success depends in part upon the
      admissions and referral practices of the physicians in the community in which
      we
      operate and our ability to cultivate and maintain relationships with these
      physicians. Physicians referring patients to our facilities are not our
      employees and are free to refer their patients to other providers. If we are
      unable to successfully cultivate and maintain strong relationships with these
      physicians, our patient population may decline.





*Our
      facilities are located in areas that may be subject to flooding or susceptible
      to tornadoes.*





Though
      we retain property and business
      interruption insurance, our facilities are not fully insured for flood damage
      and we may not fully recover all losses sustained in the case of flooding,
      tornadoes or other incidents.





*We
      are required to comply with the Sarbanes Oxley Act of 2002, Section 404, or
      SOX,
      that involves an in-depth evaluation of our internal controls and compliance
      with the reporting requirements.*


13


As
      a non-accelerated filer, we are
      mandated to be compliant by December 31, 2007. To comply with Section 404,
      we
      are required to conduct a thorough assessment of the effectiveness of our
      internal control structure and procedures for financial reporting to ascertain
      whether those controls are sufficient to prevent a material misstatement of
      our
      financial statements. The requirements of SOX are extensive and will involve
      considerable internal resources and the use of external
      consultants.  At the date of this Annual Report on Form 10-K, we have
      not taken any steps with respect to the SOX assessment and there can be no
      assurance that we will not uncover internal control material weaknesses that
      will require disclosure in our SEC filings, nor additional resources to rectify
      the deficiencies identified. The existence of one or more material weaknesses,
      management’s conclusion that its internal controls over financial reporting are
      not effective, or the inability of our auditors to express an opinion or attest
      that our management’s report is fairly stated, could result in a loss of
      investor confidence in our financial reports and/or subject us to sanctions
      or
      investigations by regulatory authorities.







**ITEM
      1B.                      UNRESOLVED
      STAFF COMMENTS**




Not
      applicable.









**ITEM
      2.                      PROPERTIES**




The
      following table sets forth the properties of the Partnership at
      December 31, 2006.  The buildings 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 Note 2 to the consolidated
      financial statements included herein.





Properties
                (dollars in 000’s)Property
            Secured
                Debt
            Acquisition
                Cost
            Net
                Book Value(1)
            Occupancy
              Rate
                in
              2006
            Date
              AcquiredMayfair
              Nursing
                Care Center
              Columbus,
                OH
            $1,203
            $4,774
            $  942
            94.5%
            February
                1985Mayfair
                Village Retirement Center
              Columbus,
                OH
            $2,100
            $4,824
            $  768
            94.5%
            February
                1985Total
            $3,303
            $9,598
            $1,710





(1)
            A
                provision was made prior to 1991 to write down each facility to its
                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 at the time of this write-down.
                These values reflect this
                write-down.




**ITEM
      3.                      LEGAL
      PROCEEDINGS**




The
      Partnership and its Managing General Partner were served with a motion to
      domesticate a default judgment entered against them in March 2006 by the Court
      of Common Pleas for Franklin County, Ohio in the proceeding styled *Karen
      Miller, Executor of the Estate of Richard Miller v. Consolidated Resources
      health Care Fund  II, et al*.  The default judgment was
      in the total amount of $499,806 and related to the death of plaintiff’s husband
      while receiving care


14


at
      the
      Nursing Facility.  WSC and the Partnership filed their motion to
      vacate the default judgment on the basis that these defendants had never
      received service of process for the initial complaint and furthermore were
      not
      subject to the jurisdiction of the Ohio courts.   On May 24,
      2007, the parties negotiated a settlement in the Ohio litigation under which
      the
      plaintiff agreed to vacate her default judgment obtained jointly against WSC
      and
      the Partnership.  Additionally, the plaintiff agreed to dismiss with
      prejudice her pending suits in both Ohio and Georgia and to execute a release
      of
      any and all claims against WSC and the Partnership relating to this
      litigation.  As part of the settlement, Life Care agreed to pay the
      plaintiff an agreed-upon sum to settle the plaintiff's
      claims.  Currently, this settlement awaits approval from the Ohio
      probate court and a hearing on this matter is scheduled for July 27,
      2007.  WSC and the Partnership moved to stay proceedings in the
      plaintiff's Georgia action seeking to domesticate her Ohio default judgment
      pending approval of the settlement and such stay remains in place until
      September 4, 2007.  It is expected that the Ohio probate court will
      approve the settlement terms and, upon final approval by the probate court,
      plaintiff's counsel will execute the above-referenced dismissals in Ohio and
      Georgia.





**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**




None.







15


**PART
      II**




**ITEM
                5.**
            **MARKET
                FOR THE REGISTRANT’S UNITS OF LIMITED PARTNERSHIP, SECURITY HOLDER MATTERS
                AND ISSUER PURCHASES OF EQUITY
                SECURITIES**




(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                                                                           584
      as of July 11, 2007




(C)
            No
                cash was distributed to the Limited Partners during
                2006.  Cumulative distributions paid to the Limited Partners as
                of December 31, 2006 were $3,538,203.  No distributions have
                been made to the General Partners.  Future distributions are
                dependent on the Partnership’s ability to meet its ongoing
                obligations.  *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.




**ITEM
                6.**
            **SELECTED
                FINANCIAL DATA**




The
      selected consolidated financial data set forth below should be read in
      conjunction with Management’s Discussion and Analysis of Financial Condition and
      Results of Operations set forth below and the financial statements of the
      Partnership included elsewhere in this Report and referred to in the Index
      to
      Financial Statements (together with the notes and other reports relating to
      such
      financial statements).





**Year
                  Ended December 31****2002**
              
              
              **2003**
              
              
              **2004**
              
              
              **2005**
              
              
              **2006****(Amounts
                  in thousands, except per Unit amounts)****Statement
                  of Operations Data:**Operating
                  revenue
              
              $
              8,437
              
              
              $
              8,152
              
              
              $
              8,731
              
              
              $
              10,493
              
              
              **$**
              **11,164**Interest
                  income
              
              
              29
              
              
              
              28
              
              
              
              14
              
              
              
              41
              
              
              ****
              **124**Total revenue
              
              
              8,466
              
              
              
              8,180
              
              
              
              8,745
              
              
              
              10,534
              
              
              ****
              **11,288**Operating
                  expense
              
              
              6,666
              
              
              
              6,611
              
              
              
              6,907
              
              
              
              7,982
              
              
              ****
              **8,522**Other expense
              
              
              1,666
              
              
              
              1,519
              
              
              
              1,486
              
              
              
              1,841
              
              
              ****
              **1,939**Net income
              
              
              134
              
              
              
              50
              
              
              
              352
              
              
              
              711
              
              
              ****
              **827**Net
                  income allocable to Limited Partners
              
              
              129
              
              
              
              48
              
              
              
              338
              
              
              
              682
              
              
              ****
              **794**Weighted
                  average Limited Partnership Units Outstanding
              
              
              15
              
              
              
              15
              
              
              
              15
              
              
              
              15
              
              
              ****
              **15**Basic
                  and diluted net income per weighted average Limited
                  Partnership Unit
              
              $
              8.61
              
              
              $
              3.22
              
              
              $
              22.53
              
              
              $
              45.49
              
              
              **$**
              **52.91**Cash
                  distributions paid per Limited Partnership
                  Unit
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              ****
              **0**
  16
 
 **Balance
                  Sheet Data:**Property
                  and equipment, net (1)
              
              $
              2,276
              
              
              $
              1,861
              
              
              $
              1,545
              
              
              $
              1,133
              
              
              **$**
              **1,710**Total
                  assets (1)
              
              
              5,376
              
              
              
              5,277
              
              
              
              5,731
              
              
              
              6,394
              
              
              ****
              **8,119**Long-term
                  debt, less current maturities
              
              
              3,661
              
              
              
              3,547
              
              
              
              3,428
              
              
              
              3,303
              
              
              ****
              **3,161**Partners’
                  equity (1)
              
              
              672
              
              
              
              723
              
              
              
              1,075
              
              
              
              1,786
              
              
              ****
              **3,435**





(1)  Adjusted
      upon the adoption of SEC Staff Accounting Bulletin No. 108 (see “Adoption of SEC
      Staff Accounting Bulletin No. 108” in Item 7 below).  The impact of
      this adjustment increased property and equipment, total assets and partners’
equity by $823 thousand as of January 1, 2006.


17


**ITEM
                7.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATION**




The
      purpose of the following discussion is to address information relating to the
      financial condition and results of operations of the Partnership that may not
      be
      readily apparent from a review of the consolidated financial statements and
      notes thereto, which begin on page F-1 of this report. This discussion should
      be
      read in conjunction with information provided in the Partnership’s consolidated
      financial statements and accompanying footnotes.




**Cautionary
      Notice Regarding Forward-Looking Statements**




Certain
      of the statements made in this report and in documents incorporated by reference
      herein, including matters discussed in this section captioned “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations,” may
      constitute forward-looking statements within the meaning of Section 21E of
      the
      Securities Exchange Act of 1934, as amended (the “Exchange
      Act”).  Such forward-looking statements are based on management’s
      beliefs, current expectations, estimates and projections about the nursing
      home
      or other healthcare provider industry, the economy and about the Partnership
      in
      general.  The words “expect,” “anticipate,” “intend,” “plan,”
“believe,” “seek,” “estimate” and similar expressions are intended to identify
      such forward-looking statements.  Such forward-looking statements are
      not guarantees of future performance and are subject to risks, uncertainties
      and
      other factors that may cause the actual results, performance or achievements
      of
      the Partnership to differ materially from historical results or from any results
      expressed or implied by such forward-looking statements. The Partnership
      cautions readers that the following important factors, among others, could
      cause
      the Partnership’s actual results to differ materially from the forward-looking
      statements contained in this report:


·           changes
      in healthcare reimbursement systems and rates;


·           the
      availability of capital and financing;


·           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.




**Critical
      Accounting Policies and Estimates**




The
      Partnership’s discussion and analysis of the financial condition and results of
      operations are based upon the consolidated financial statements, which have
      been
      prepared in accordance with accounting principles generally accepted in the
      United States of America. The preparation of these financial statements requires
      the use of estimates and judgments that affect the reported amounts and related
      disclosures of assets and liabilities, the 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 may differ
      materially from these estimates. The Partnership believes the following critical
      accounting policies, among others, affect the more significant judgments and
      estimates used in the preparation of the consolidated financial
      statements.




*Operating
      revenue*




Operating
      revenue consists of rental income, long-term nursing revenues, and other
      ancillary services revenues. Operating revenues are recognized as services
      are
      provided and include amounts reimbursable by the Medicaid and Medicare
      programs.  We record gross service charges in our accounting records
      on an accrual basis using our established rates for the type of service provided
      to the patient.  We recognize an estimated contractual allowance to
      reduce gross patient charges receivable to an amount that we estimate we will
      actually realize for the service rendered based upon previously agreed to rates
      with a payor, and adjust such amounts in future periods as final settlements
      are
      determined.  Payors include Federal and state agencies, including
      Medicare and Medicaid.  Laws and regulations governing the Medicare
      and Medicaid programs are complex and subject to
      interpretation.  Management continually reviews the contractual
      estimation process to consider and incorporate updates to laws and
      regulations.




18


*Property,
      equipment and long-lived assets*




Property
      and equipment are recorded at cost less accumulated depreciation and 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. The Partnership
      evaluates the carrying value of long-lived assets in relation to the future
      projected undiscounted cash flows of the underlying properties to assess
      recoverability in accordance with Statement of Financial Accounting Standards
      No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
      144”).  Those projected future undiscounted cash flows require
      significant assumptions about future operations, such as reimbursement rates
      for
      Medicaid and Medicare patients, occupancy rates, wage rates, workers
      compensation costs and professional liability costs. Under SFAS 144, an
      impairment loss is recognized if the sum of the future net expected cash flows
      is less than the carrying amount of the long-lived assets being evaluated.
      The
      difference between the carrying amount of the long-lived assets being evaluated,
      and the estimated fair market value of the assets represents the impairment
      loss. The Partnership determines estimated fair value for the long-lived assets
      that it intends to retain based on anticipated future cash flows discounted
      at
      rates commensurate with the risks involved.




*Adoption
      of SEC Staff Accounting Bulletin No. 108*





In
      September 2006, SEC staff issued Staff Accounting Bulletin No. 108,
“*Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements”*(“SAB 108”). SAB 108
      was issued in order to eliminate the diversity in practice surrounding how
      public companies quantify financial statement misstatements. SAB 108 requires
      that registrants quantify errors using both a balance sheet and income statement
      approach and evaluate whether either approach results in a misstated amount
      that, when all relevant quantitative and qualitative factors are considered,
      is
      material. SAB 108 is effective for fiscal years ending after November 15, 2006.
      The Partnership adopted SAB 108 as of December 31, 2006.





In
      applying the provisions of SAB 108, the Partnership identified misstatements
      in
      calculating depreciation which had a cumulative positive effect on partners’
equity as of December 31, 2005 of $822,924. Under our previous method of
      evaluating misstatements, we believe that the effect of these adjustments,
      individually and in the aggregate, were not material, either quantitatively
      or
      qualitatively, in any of the years affected under our previous method of
      evaluating misstatements. As allowed by the transition provisions of SAB 108,
      the Partnership elected to not restate prior year financial statements and,
      instead, recorded the adjustments to partners’ equity as of January 1, 2006. SAB
      108 also requires the adjustment of any quarterly financial statements within
      the fiscal year of adoption for the effects of such errors on the quarters
      when
      the information is next presented. Such adjustments do not have a material
      effect on any quarter within 2006 and thus will not require previously filed
      reports with the SEC to be amended.







**Results
      of Operations**




**Revenues:**




*Fiscal
      Year Ended December 31, 2006 Compared to Fiscal Year Ended December 31,
      2005*




Operating
      revenues increased $671 thousand (6.4%) in 2006 as compared to
      2005.  The increase was primarily attributable to a $17 thousand
      (0.7%) increase in operating revenues realized by the Retirement Facility and
      a
      $626 thousand  (7.3%) increase in operating revenues realized by the
      Nursing Facility.  The increased operating revenues at the Retirement
      Facility are primarily due to slight decrease in census offset by a rate
      increase effective during January 2006.****The increased
      operating revenues at the Nursing Facility are primarily attributable to
      increased bed days and improved patient mix.




*Fiscal
      Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31,
      2004*




Operating
      revenues increased $1,763 thousand (20.2%) in 2005 as compared to
      2004.  The increase was primarily attributable to a $325 thousand
      (16.6%) increase in operating revenues realized by the Retirement Facility
      and
      a




19


$1,420
      thousand (19.9%) increase in operating revenues realized by the Nursing
      Facility.  The increased operating revenues at the Retirement Facility
      are primarily due to an increase in census and a rate increase effective during
      January 2005.****The increased operating revenues at the
      Nursing Facility are primarily attributable to increased bed days and improved
      patient mix.







**Expenses:**




*Fiscal
      Year Ended December 31, 2006 Compared to Fiscal Year Ended December 31,
      2005*




Operating
      costs and expenses increased by $638 thousand (6.5%) in 2006 as compared to
      2005.  The Nursing
      Facility experienced a $569 thousand (7.7%) increase in expenses primarily
      attributable toan
      11.6% increase in administrative
      expenses, a 20.4% increase in taxes and insurance and a 5.1% increase in elderly
      and congregate care expenses.  The Retirement Facility experienced a
      $35 thousand (1.7%) increase in expenses primarily attributable toa16.8% increase  in taxes and
      insurance.  Operating expenses at the Partnership level increased by
      $91 thousand, in large part due to increases in partnership administration
      costs
      (primarily increased auditing and legal fees) of 26.7%.







*Fiscal
      Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31,
      2004*




Operating
      costs and expenses increased by $1,430 thousand (17.0%) in 2005 as compared
      to
      2004 primarily as a result of higher occupancy rates at both facilities as
      partially offset by reductions due to detailed attention to variable cost
      controls.  The Nursing
      Facility experienced a $1,100 thousand (17.6%) increase in
      expenses.  The increase experienced by the Nursing Facility is
      primarily attributable toa16.3% increase in utilities, an 11.3%
      increase in taxes and insurance and a 22.7% increase in elderly and congregate
      care expenses.  Operating expenses at the Partnership level increased
      by $242 thousand, in large part due to increases in partnership administration
      costs (primarily increased auditing and legal fees) of
      333.1%.





**Net
      Income:**




*Fiscal
      Year Ended December 31, 2006 Compared to Fiscal Year Ended December 31,
      2005*




For
      the
      fiscal year ended December 31, 2006, the Partnership had a net income increase
      of $116 thousand (16.3%) over 2005.  This increase was primarily
      attributable to increased revenues at the facilities during 2006, as partially
      offset by the overall increase in expenses for the facilities and at the
      Partnership level during 2006 as discussed above.




*Fiscal
      Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31,
      2004*




For
      the
      fiscal year ended December 31, 2005, the Partnership had a net income increase
      of $359 thousand (101.9%) over 2004.  This increase was primarily
      attributable to increased revenues at the facilities during 2005, as partially
      offset by the overall increase in expenses for the Nursing Facility and at
      the
      Partnership level during 2005 as discussed above.




**Liquidity
      and Capital Resources**




At
      December 31, 2006, the Partnership held cash and cash equivalents of $4.95
      million, an increase of $1.58 million (46.9%) from the amount held at December
      31, 2005.  The 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 must be
      maintained in accordance with operating reserves established by the U.S.
      Department of Housing and Urban Development (“HUD”).  At December 31,
      2006, the balance of HUD reserved cash at the facilities was $482 thousand,
      which is equal to the mortgage escrow and reserve for replacement
      accounts.




20


During
      fiscal 2006, operating cash flows provided by operations increased to $1.9
      million compared to $1.0 million in fiscal 2005.  This increase in
      cash flow was primarily attributed to the collection of accounts receivable
      and
      an increase in net income experienced by the Partnership in 2006.




The
      Partnership believes that it will produce sufficient cash flow to meet the
      ongoing operations needs associated with the two facilities currently owned
      by
      it.




As
      of
      December 31, 2006, 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.




No
      cash
      was distributed to the Partners during the year ended December 31,
      2006.  No funds have been distributed to the Partners since
      1998.  Cumulative distributions paid to the Limited Partners as of
      December 31, 2006 were $3.54 million.  A special meeting of the
      limited partners of  the Partnership was held on January 11, 2007. At
      this meeting the limited partners approved, among other things, a proposal
      submitted by certain Limited Partners to authorize a sale of Partnership assets,
      liquidation and dissolution.  In light of the actions taken by the
      Limited Partners at the special meeting, the Managing General Partner does
      not
      intend at this time to make any distributions while it undertakes the required
      sale and dissolution activities*.*  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 Facility level.





During
      the three year period 2004 – 2006, the Partnership experienced continually
      increasing working capital.  During this three year period, the
      Partnership’s working capital grew by $2.6 million (or 175%) to $4.55
      million.




During
      the three year period 2004 – 2006, the Partnership consistently generated cash
      from operations.  Over this three year period, the Partnership
      generated $3.47 million in cash from operations, which resulted in the increase
      in working capital noted above after funding capital improvements and mortgage
      payments.




**Seasonality**




Our
      earnings generally fluctuate from quarter to quarter.  This
      seasonality is related to a combination of factors, which include the timing
      of
      Medicaid rate increases and payroll tax obligations, inclement weather, seasonal
      census cycles, and the number of calendar days in a given quarter.




**Impact
      of Inflation**




The
      healthcare industry is labor intensive.  Wages and other labor costs
      are especially sensitive to inflation and marketplace labor
      shortages.  We have implemented cost control measures to limit
      increases in operating costs and expenses but cannot predict our ability to
      control such operating cost increases in the future.




**Contractual
      Obligations**




The
      following table discloses aggregate information, as of December 31, 2006, about
      our contractual obligations and the periods in which payments are
      due:




Payments
                Due By Period (in thousands)Total
                Payments Due
            2007
            2008
            2009
            2010
            2011
            ThereafterLong-Term
                Debt
            $3,303
            $142
            $153
            $165
            $178
            $191
            $2,474Total
                Contractual Cash Obligations
            $3,303
            $142
            $153
            $165
            $178
            $191
            $2,474





21


The subsidiaries of the Partnership are obligated to pay management fees to
      a
      related party in an amount equal to 5% of operating revenues.  Fees
      totaling $558 thousand were paid to the management company for the 2006 fiscal
      year.   In addition, the Managing General Partner provides
      oversight management services for the subsidiaries and receives an oversight
      management fee of 1% of operating revenues.  Oversight fees totaling
      $111 thousand were paid to the Managing General Partner for the 2006 fiscal
      year.  The management agreements for the Partnership facilities have
      expired but are continuing on a month-to-month basis.




There
      are
      no other significant commercial commitments that we could be obligated to pay
      in
      the future that are not included in our consolidated balance sheet.




**ITEM
                7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**




The
      Partnership does not engage in any transactions exposing the Partnership to
      material market risk.  The Partnership has no variable rate
      debt.




22


**ITEM
                8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**




The
      consolidated financial statements of the Partnership, including notes thereto,
      and the report of independent registered public accounting firm are included
      in
      this Report beginning at page F-1.




*Quarterly
      Results of Operations*




The
      following table presents certain unaudited quarterly statements of operations
      data for each of the eight quarters beginning January 1, 2005 and ending
      December 31, 2006.  Such information, in the opinion of management,
      includes all adjustments necessary for a fair presentation of that information.
      The results of operations for any quarter are not necessarily indicative of
      the
      results to be expected for any future quarter.




*(Unaudited
      – in thousands, except per share data)*





2005
                Quarters
            
            
            2006
                Quarters (1)First
            Second
            Third
            Fourth
            
            First
            Second
            Third
            FourthTotal
                revenue
            $2,456
            $2,516
            $2,457
            $3,105
            
            $2,733
            $2,749
            $2,797
            $3,008Total
                expense
            2,188
            2,324
            2,361
            2,950
            
            2,651
            2,476
            2,546
            2,788Net
                income
            267
            191
            96
            157
            
            83
            272
            251
            221Net
                income allocable to Limited Partners
            257
            183
            93
            151
            
            80
            262
            241
            212Weighted
                average Limited Partnership Units Outstanding
            15
            15
            15
            15
            
            15
            15
            15
            15Basic
                and diluted net income per weighted average Limited Partnership
                Unit
            17.12
            12.22
            6.17
            9.98
            
            5.31
            17.44
            16.05
            14.11Cash
                and cash equivalents
            3,115
            3,255
            3,177
            3,371
            
            3,580
            4,041
            4,207
            4,953Accounts
                receivable
            1,002
            904
            1,108
            1,358
            
            1,198
            1,114
            1,144
            924Total
                assets
            6,136
            6,081
            6,086
            6,394
            
            7,261
            7,580
            7,721
            8,119Long-term
                obligations, net of current portion
            3,398
            3,368
            3,337
            3,303
            
            3,268
            3,233
            3,183
            3,161Total
                long-term liabilities
            3,580
            3,501
            3,385
            3,408
            
            3,322
            3,383
            3,249
            3,319Partners’
                equity
            1,342
            1,533
            1,630
            1,786
            
            2,692
            2,964
            3,215
            3,435







(1)  Amounts
      for the first, second and third quarters of 2006 have been adjusted from the
      amounts disclosed in the respective Form 10-Qs as a result of the adjustment
      recorded upon the adoption of the provisions of SAB 108 (see “Adoption of SEC
      Staff Accounting Bulletin No. 108” in Item 7 above). The impact of this
      adjustment decreased total expenses and increased net income by $14 thousand
      (or
      $0.91 per weighted average Limited Partner Unit) per quarter, and increased
      total assets and partners’ equity by $837 thousand, $851 thousand and $866
      thousand for the quarters ended March 31, 2006, June 30, 2006 and September
      30,
      2006, respectively




**ITEM
                9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**




On
      July
      28, 2005, the Partnership dismissed BDO Seidman, LLP (“BDO”) as the
      Partnership’s independent registered public accounting firm.  This
      dismissal, which was immediately effective, was approved by the Managing General
      Partner.  The Partnership has been delinquent in the filing of its
      periodic reports with the SEC since 2002.  The reports of BDO on the
      financial statements of the Partnership for the years ended December 31, 2000
      and 2001, which are the most current Annual Reports on Form 10-K filed by the
      Partnership with the Securities and Exchange Commission containing the report
      of
      BDO, contained no adverse opinion or disclaimer of opinion and were not
      qualified or modified as to uncertainty, audit scope or accounting
      principle.  During the years ended December 31, 2003 and 2004, there
      have been no disagreements with BDO on any matter of accounting principles
      or
      practices, financial statement disclosure, or auditing scope or procedure,
      which
      disagreements, if not resolved to the satisfaction of BDO, would
      have




23


caused
      BDO to make reference thereto in its reports on the financial statements of
      the
      Partnership for such years.  In 2004, BDO notified the Managing
      General Partner that the Partnership should consider hiring additional personnel
      or engage a consultant to assist in preparing the Partnership’s financial
      statements and related footnotes in accordance with Regulation S-X of the
      Securities and Exchange Commission.  In response to such suggestion,
      the Partnership has since engaged a consultant for this
      purpose.  Other than the foregoing, during the years ended December
      31, 2005  and 2006 and as of the filing of this Report, there have
      been no reportable events (as defined in Item 304(a)(1)(v) of Regulation
      S-K).




On
      July
      28, 2005, the Partnership engaged Porter Keadle Moore, LLP (“PKM”) as its new
      independent registered public accounting firm to audit the Partnership’s
      financial statements for the years ending December 31, 2002, 2003 and 2004
      and
      to review the financial statements to be included in the Partnership’s quarterly
      reports on Form 10-Q.  PKM has also been engaged to audit the
      Partnership’s statements for the years ending December 31, 2005 and
      2006.  The decision to engage PKM was approved by the Managing General
      Partner.  Prior to the engagement of PKM, neither the Partnership nor
      anyone on behalf of the Partnership consulted with PKM during the Partnership’s
      two most recent fiscal years, in any manner regarding either: (A) the
      application of accounting principles to a specified transaction, either
      completed or proposed, or the type of audit opinion that might be rendered
      on
      the Partnership’s financial statements; or (B) any matter that was the subject
      of either a disagreement or a reportable event (as defined in Item 304(a)(1)(iv)
      and (v), respectively, of Regulation S-K).




**ITEM
      9A.                      CONTROLS
      AND PROCEDURES.**




***Evaluation
      of Disclosure Controls and Procedures***




John
      F.
      McMullan, the principal executive officer and chief financial officer of the
      Managing General Partner of the Partnership who performs reporting functions
      for
      the Partnership, has evaluated the effectiveness of the design and operation
      of
      the Partnership’s disclosure controls and procedures as of the end of the period
      reflected in this Report with respect to their adequacy in ensuring that
      information required to be disclosed in the reports that the Partnership files
      or submits under the Securities Exchange Act of 1934, is recorded, processed,
      summarized and timely reported as required by the rules and forms of the
      Securities and Exchange Commission.  Based on that evaluation, he has
      concluded that the Partnership’s disclosure controls and procedures are
      effective at ensuring that required information is made available to him for
      disclosure in the Partnership’s reports filed under the Exchange
      Act.  However, the Partnership is not timely in filing its reports
      with the Securities and Exchange Commission.  The Partnership is in
      the process of bringing its filings with the Securities and Exchange Commission
      up to date and in connection with those efforts intends to improve its
      disclosure controls and procedures such that material information will be made
      available on a timely basis for disclosure in required reports.  The
      Partnership currently has outsourced the preparation of its financial statements
      for inclusion in its SEC reports to a consultant.




*Our
      Relationship with Life
      Care*




Life
      Care Centers of America, Inc.
      (“Life Care”) has provided management services with respect to the Partnership’s
      two facilities for over 15 years pursuant to the terms of management agreements
      originally put in place in 1991.  Under these agreements, Life Care is
      responsible for maintaining books and records for the Partnership’s facilities
      and providing financial statements, prepared in accordance with GAAP, relating
      to the business operations of the two facilities.  Due to this
      relationship, the Partnership necessarily relies on Life Care to provide
      accurate, timely and sufficient data and information to properly record all
      revenues, expenses and accounts receivables of the two Partnership facilities,
      which underlie a substantial portion of the Partnership’s periodic financial
      statements and other financial disclosures.




*Our
      Disclosure Controls and Procedures
– Fiscal 2005*




Because
      of the Partnership’s reliance on Life Care for financial information, the
      Managing General Partner relies on Life Care to design adequate internal
      controls with respect to the processes established to provide this data and
      information to the Partnership.  In May of 2006, in the course of
      preparing the reports the Partnership is required to file with the Department
      of
      Housing and Urban Development each year, it became apparent that certain cash
      reconciliations




24


were
      not
      performed by Life Care in a timely and correct manner.  To address
      these issues, we conducted a lengthy inquiry into the causes of the cash
      reconciliation issues.  Among other things, we had numerous
      discussions with Life Care’s accounting staff.  Life Care ultimately
      came to the conclusion that one senior individual in the accounting department
      who had been given overall responsibility for the financial reporting did not
      prove to have the competencies necessary to adequately perform the roles
      expected of a senior financial officer at Life Care.  Consequently,
      Life Care effected a staffing change and replaced that individual with a
      senior-level officer who had the required expertise.  The failure to
      properly perform these cash reconciliations was determined to be a material
      weakness in the Partnership’s internal controls.   A material
      weakness is a significant deficiency, or a combination of significant
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected.




As
      a result of the inquiries of Life
      Care, the changes in the procedures at Life Care and the changes made to the
      accounting staff, the Managing General Partner concluded that the material
      weakness in internal controls discovered during the course of preparing the
      2005
      reports to be filed with the SEC were corrected in 2006 and did not impact
      the
      preparation of the 2006 reports.




***Changes
      in Internal Control over Financial Reporting***




We
      refer you to the information
      discussed above in Evaluation of Disclosure Controls and
      Procedures.




**ITEM
      9B.                      OTHER
      INFORMATION.**




None.




25


**PART
      III**




**ITEM
                10.**
            **DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE
                GOVERNANCE**




The
      Partnership does not have officers or directors and, consequently, does not
      have
      any standing committees and has not adopted a code of ethics.  At
      December 31, 2006, the General Partners of the Partnership were Consolidated
      Associates II and WelCare Service Corporation-II as Managing General Partner
      of
      the Partnership.  The executive officer and sole director of WSC-II
      who controls the affairs of the Partnership, is as follows:







Name
                and Position
            Age
                at 12/31/06
            Principal
                Occupations and Other Directorships During the Past 5
                YearsJohn
                F. McMullan,
              President,
                Secretary
              and
                Sole Director
            70
            John
                F. McMullan has served as President, Secretary and Director of WSC-II
                since July, 1998.  For more than five years prior to the date
                hereof, Mr. 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.





**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.




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 Note 3 to the consolidated financial statements
      included herein).




**ITEM
      12.                      SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**




The
      Partnership has no directors or officers and the General Partners do not own
      any
      Limited Partnership Units. To the best knowledge of the Partnership, as of
      the
      date of this report (based on a Unit ownership register dated July 11, 2007
      and
      the public filings referenced below), no person beneficially owned more than
      5.0% of the outstanding Units of limited partnership interest except as
      follows:




(i)
      MacKenzie Patterson Fuller LP, whose address is 1640 School Street, Moraga,
      California  94556, disclosed in a Schedule 13D filed on April 9, 2007
      that it owned or controlled on behalf of various funds 3,390 Units
      (22.6%);




(ii)
      Care
      Associates, LLC, whose address is c/o Life Care Centers of America, Inc., 3570
      Keith Street, NW, Cleveland, TN  37312, owns 1,805 Units
      (12%);




(iii)
      LP
      Liquidity, LLC, whose address is c/o Vincent T. Gresham, 2575 Peachtree Road,
      Suite 22C, Atlanta, GA 30305, owns 750 Units (5%);




(iv)
      Everest Management, LLC, whose address is 199 South Los Robles Avenue, Suite
      200, Pasadena, CA  91101, owns 750 Units (5%); and




(v)
      Barry
      Zemel d/b/a Baseline Investment, whose address is P.O. Box 47638, Phoenix,
      AZ  85068-7638, owns 903.5 Units (6%).




26


**ITEM
      13.                      CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**




The
      Partnership does not have officers or directors.  At December 31,
      2006, the General Partners of the Partnership were Consolidated Associates
      II
      and WelCare Service Corporation-II as Managing General Partner of the
      Partnership.




**Management
      Agreements**




*Mayfair
      Nursing Care Center*  Pursuant to a Management Agreement executed
      in March 1991, management oversight for the Nursing Facility is provided by
      WSC
      (successor to Welcare Consolidated Resources Corporation of America, the
      original party to this agreement) and day-to-day management of the facility’s
      operations is provided by Life Care Centers of America, Inc. (“Life
      Care”).  Life Care owns a 0.5% interest in Mayfair Village Ltd. and
      Mayfair Nursing Care Center Ltd., the entities who own the Properties, and
      the
      remaining 99.5% interest of these entities is owned by the
      Partnership.  As compensation for its services, WSC is entitled to
      monthly oversight fees equal to one percent (1%) of the nursing facility’s
      operating income.  As compensation for its services, Life Care is
      entitled to monthly management fees equal to five percent (5%) of the nursing
      facility’s operating income.  Although the Management Agreement by its
      terms expired in March 1996, the parties have continued to operate under its
      original provisions.  Forrest Preston, who owns a 33% general partner
      interest in CA, the non-managing General Partner of the Partnership, owns 100%
      of Life Care and Mr. McMullan serves on Life Care’s Board of
      Directors.  In addition, Mr. McMullan and Mr. Preston have been
      involved in numerous business relationships for over 30 years, including those
      in which they invested in and/or managed properties similar to the Properties
      owned by the Partnership.




*Mayfair
      Retirement Center*  Also pursuant to a Management Agreement
      executed in March 1991 containing substantially identical terms as that
      applicable to the nursing facility, management oversight for the retirement
      facility is provided by WSC (successor to Welcare Consolidated Resources
      Corporation of America, the original party to this agreement) and day-to-day
      management of the facility’s operations is provided by Life Care.  As
      compensation for its services, WSC is entitled to monthly oversight fees equal
      to one percent (1%) of the retirement facility’s operating income.  As
      compensation for its services, Life Care is entitled to monthly management
      fees
      equal to five percent (5%) of the retirement facility’s operating
      income.  As with the nursing facility, although the Management
      Agreement by its terms expired in March 1996, the parties have continued to
      operate under its original provisions.




*Management
      Fees and Expenses
      Paid*WSC (and/or its affiliate) received an aggregate of
      $103,425, and $111,389 in oversight fees and $310,397, and $344,421 in
      reimbursable expenses for the fiscal years ending December 31, 2005 and 2006,
      respectively.  Life Care (and/or its affiliate) received an aggregate
      of  $522,498, and $557,768 in management fees for the fiscal years
      ending December 31, 2005 and 2006, respectively.  These expenses are
      included in Partnership administration costs in the accompanying consolidated
      statement of operations.





**ITEM
      14.                      PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**




**Audit
      Fees**




With
      respect to its 2006 and 2005 fiscal years, the Partnership paid its outside
      accountants fees as follows:




***Porter
      Keadle Moore LLP***




*Audit
      Fees*.  The
      aggregate fees billed by Porter Keadle Moore, LLP for professional services
      rendered for the audit of the Partnership’s annual financial statements for the
      fiscal years ended December 31, 2006 and December 31, 2005 and for the review
      of
      the financial statements included in the Partnership’s Quarterly Reports on Form
      10-Q for such fiscal years were $105,693 and $125,181,
      respectively.





*Audit-Related
      Fees*.  The aggregate fees billed by PKM for assurance and related
      services that were reasonably related to the audit of the Partnership’s annual
      financial statements for the fiscal years ended December 31, 2006 and 2005
      were
      $0 and $0, respectively.




27


*Tax
      Fees*.  The aggregate fees billed by PKM in 2006 and 2005 for tax
      compliance, tax advice and tax planning services were $24,930 and $13,050,
      respectively.




*All
      Other Fees*.  The aggregate fees billed by PKM in 2006 and 2005
      for services rendered to the Partnership, other than the services described
      above were $0 and $0, respectively.




The
      Managing General Partner is responsible for all matters involving the
      Partnership’s independent auditors, including pre-approving all auditing
      services and permitted non-audit services to be performed by its independent
      registered public accounting firm.  All of the fees paid to PKM in
      each of the categories described above were pre-approved by the Managing General
      Partner.




28


**PART
      IV**




**ITEM
                15.**
            **EXHIBITS
                AND FINANCIAL STATEMENT
                SCHEDULES**




(a)
            The
                following financial statements are filed with this report beginning
                on
                page F-1:




(1)
            Consolidated
                Financial Statements:




Report
                of Independent Registered Public Accounting
                Firm




Consolidated
                Balance Sheets - as of December 31, 2006 and
                2005




Consolidated
                Statements of Income - for the Years Ended December 31, 2006, 2005
                and
                2004




Consolidated
                Statements of Partners’ Equity - for the Years Ended December 31, 2006,
                2005 and 2004




Consolidated
                Statements of Cash Flows - for the Years Ended December 31, 2006,
                2005 and
                2004




Summary
                of Significant Accounting Policies




Notes
                to Consolidated Financial
                Statements




(2)
            The
                following financial statement schedule is included in this
                report:




Schedule
      II - Valuation and Qualifying Accounts for the years ended December 31,
      2006, 2005 and 2004




All
      other
      schedules are omitted because they are not required, are not applicable, or
      the
      financial information required is included in the consolidated financial
      statements or notes thereto.




(3)
            The
                following exhibits are incorporated by reference and are an integral
                part
                of this Form 10-K:





Exhibit
                Number
              (as
                per Exhibit Table)
            Document
                Description3.1
            Amended
                and Restated Agreement and Certificate of Limited Partnership of
                Consolidated Resources Health Care Fund II dated January 11, 2007
                (filed
                as Annex A to the definitive proxy statement on Schedule 14A filed
                with
                the SEC on November 16, 2006 and incorporated herein by
                reference)10.1
            Management
                Agreement dated March 1, 1991 among Consolidated Resources Health
                Care
                Fund II, Welcare Consolidated Resources Corporation of America and
                Life
                Care Centers of America, Inc. relating to Mayfair Nursing Care Center
                (filed as Exhibit (d)(1) to the Mackenzie Schedule 14D-9 and incorporated
                herein by reference)10.2
            Management
                Agreement dated March 1, 1991 among Consolidated Resources Health
                Care
                Fund II, Welcare Consolidated Resources Corporation of America and
                Life
                Care Centers of America, Inc. relating to Mayfair Retirement Center
                (filed
                as Exhibit (d)(2) to the Mackenzie Schedule 14D-9 and incorporated
                herein
                by reference)21
            Subsidiaries31.1
            Certification
                Pursuant to 17 CFR 240.13a-1432.1
            Certification
                Pursuant to 18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.





29





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 PartnerDate:
                July 31, 2007
            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:  July
                31, 2007
            By:             
                /s/ John F. McMullan
              John
                F. McMullan
              Director
                and Principal Executive Officer
              of
                the Managing General PartnerDate:  July
                31, 2007
            By:             
                /s/ John F. McMullan
              John
                F. McMullan
              Chief
                Financial Officer of the Managing General
                Partner







30




Report
        of
        Independent Registered Public Accounting Firm
 
 
 To
        the
        Partners
 Consolidated
        Resources Health Care Fund II and Subsidiaries
 Atlanta,
        Georgia
 
 We
        have
        audited the accompanying consolidated balance sheets of Consolidated Resources
        Health Care Fund II and Subsidiaries (the “Partnership”) as of December 31, 2006
        and 2005 and the related consolidated statements of income, partners' equity
        and
        cash flows for each of the three years in the period ended December 31,
        2006.  Our audits also included the accompanying financial statement
        schedule, Schedule II – Valuation and Qualifying Accounts, of the Partnership.
        These consolidated financial statements and financial statement schedule
        are the
        responsibility of the Partnership's management. Our responsibility is to
        express
        an opinion on these consolidated financial statements and financial statement
        schedule based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). 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
        financial statement presentation. 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 financial position of Consolidated Resources
        Health Care Fund II and Subsidiaries as of December 31, 2006 and 2005, and
        the
        results of their operations and their cash flows for each of the three years
        in
        the period ended December 31, 2006, in conformity with accounting principles
        generally accepted in the United States of America.  Also, in our
        opinion, the related financial statement schedule, when considered in relation
        to the basic consolidated financial statements, taken as a whole, presents
        fairly in all material respects the information set forth therein.
 
 
 
 
 
 Atlanta,
        Georgia
 June
        12,
        2007
  F-1
  Consolidated
        Resources Health Care Fund II and Subsidiaries
 Consolidated
        Balance Sheets
 
 
 December
                  31,
              
              2006
              
              
              2005AssetsCurrent
                  assetsCash
                  and cash equivalents (Note 5)
              
              $
              4,952,996
              
              
              $
              3,370,837Accounts
                  receivable, net of allowance fordoubtful
                  accounts of  $89,596 and $92,588,respectively
                  (Note 4)
              
              
              923,971
              
              
              
              1,358,073Prepaid
                  expenses and other
              
              
              40,531
              
              
              
              47,251Total
                  current assets
              
              
              5,917,498
              
              
              
              4,776,161Property
                  and equipment (Note 2)Land
              
              
              189,833
              
              
              
              189,833Buildings
                  and improvements
              
              
              7,319,452
              
              
              
              7,256,598Equipment
                  and furnishings
              
              
              1,254,683
              
              
              
              1,131,7238,763,968
              
              
              
              8,578,154Less:  accumulated
                  depreciation
              
              
              (7,054,258
              )
              
              
              (7,444,737
              )Net
                  property and equipment
              
              
              1,709,710
              
              
              
              1,133,417Other
                  assetsRestricted
                  escrows and other deposits (Note 2)
              
              
              481,587
              
              
              
              439,709Deferred
                  loan costs, net of accumulatedamortization
                  of $22,645 and $21,608,respectively
              
              
              10,461
              
              
              
              11,498Other
              
              
              -
              
              
              
              33,000Total
                  other assets
              
              
              492,048
              
              
              
              484,207$
              8,119,256
              
              
              $
              6,393,785
  
 See
        accompanying summary of significant accounting policies and notes to
        consolidated financial statements.
  F-2
  
 Consolidated
        Resources Health Care Fund II and Subsidiaries
 Consolidated
        Balance Sheets, continued
 
 
 December
                  31,
              
              2006
              
              
              2005Liabilities
                  and Partners' EquityCurrent
                  liabilitiesCurrent
                  maturities of long-term debt obligations(Note
                  2)
              
              $
              141,979
              
              
              $
              131,751Accounts
                  payable
              
              
              277,436
              
              
              
              234,787Accrued
                  expenses (Note 6)
              
              
              830,533
              
              
              
              674,977Deposit
                  liabilities
              
              
              61,259
              
              
              
              75,715Deferred
                  revenue
              
              
              53,181
              
              
              
              82,693Total
                  current liabilities
              
              
              1,364,388
              
              
              
              1,199,923Long-term
                  debt obligations, less currentmaturities
                  (Note 2)
              
              
              3,160,862
              
              
              
              3,302,841Other
                  liabilities
              
              
              158,635
              
              
              
              105,368Total
                  liabilities
              
              
              4,683,885
              
              
              
              4,608,132Commitments
                  and Contingencies (Notes 1, 4, 5 and 8)Partners'
                  equity (deficit) (Notes 2 and 3)Limited
                  partners
              
              
              3,465,524
              
              
              
              1,881,795General
                  partners
              
              
              (30,153
              )
              
              
              (96,142
              )Total
                  partners' equity
              
              
              3,435,371
              
              
              
              1,785,653$
              8,119,256
              
              
              $
              6,393,785
  
 See
        accompanying summary of significant accounting policies and notes to
        consolidated financial statements.
  F-3
  Consolidated
        Resources Health Care Fund II and Subsidiaries
 Consolidated
        Statements of Income
 
 
 Years
                  ended December 31,
              
              2006
              
              
              2005
              
              
              2004RevenueOperating
                  revenue (Note 4)
              
              $
              11,163,929
              
              
              $
              10,493,395
              
              
              $
              8,730,873Interest
                  income
              
              
              123,884
              
              
              
              40,673
              
              
              
              14,186Total
                  revenue
              
              
              11,287,813
              
              
              
              10,534,068
              
              
              
              8,745,059Operating
                  costs and expensesOperating
                  expenses (Note 8)
              
              
              8,521,607
              
              
              
              7,982,429
              
              
              
              6,906,816Depreciation
                  and amortization
              
              
              433,482
              
              
              
              492,024
              
              
              
              484,174Interest
                  (Note 2)
              
              
              265,085
              
              
              
              266,069
              
              
              
              269,765Management
                  and oversight fees (Note 1)
              
              
              669,157
              
              
              
              625,923
              
              
              
              521,995Real
                  estate taxes
              
              
              178,563
              
              
              
              146,407
              
              
              
              138,626Partnership
                  administration costs includingamounts
                  paid to affiliates (Note 1)
              
              
              393,125
              
              
              
              310,397
              
              
              
              71,668Total
                  operating costs and expenses
              
              
              10,461,019
              
              
              
              9,823,249
              
              
              
              8,393,044Net
                  income
              
              $
              826,794
              
              
              $
              710,819
              
              
              $
              352,015Basic
                  and diluted net income per limitedpartnership
                  unit
              
              $
              52.91
              
              
              $
              45.49
              
              
              $
              22.53Limited
                  partnership units outstanding
              
              
              15,000
              
              
              
              15,000
              
              
              
              15,000
  
 See
        accompanying summary of significant accounting policies and notes to
        consolidated financial statements.
  F-4
  Consolidated
        Resources Health Care Fund II and Subsidiaries
 Consolidated
        Statements of Partners' Equity
 Years
        Ended December 31, 2006, 2005 and 2004
 
 
 Limited
              
              
              General
              
              
              Total
                  Partners' EquityPartners'
                  equity (deficit), at January 1, 2004
              
              
              861,475
              
              
              
              (138,656
              )
              
              
              722,819Net
                  income
              
              
              337,934
              
              
              
              14,081
              
              
              
              352,015Partners'
                  equity (deficit), at December 31, 2004
              
              
              1,199,409
              
              
              
              (124,575
              )
              
              
              1,074,834Net
                  income
              
              
              682,386
              
              
              
              28,433
              
              
              
              710,819Partners'
                  equity (deficit), at December 31, 2005
              
              
              1,881,795
              
              
              
              (96,142
              )
              
              
              1,785,653Cumulative
                  adjustment upon adoption of SEC Staff Accounting Bulletin No.
                  108
              
              
              790,007
              
              
              
              32,917
              
              
              
              822,924Partners’
                  equity (deficit), at December 31, 2005, as adjusted
              
              
              2,671,802
              
              
              
              (63,225
              )
              
              
              2,608,577Net
                  income
              
              
              793,722
              
              
              
              33,072
              
              
              
              826,794Partners'
                  equity (deficit), at December 31, 2006
              
              $
              3,465,524
              
              
              $
              (30,153
              )
              
              $
              3,435,371
 
 See
        accompanying summary of significant accounting policies and notes to
        consolidated financial statements.
  F-5
  Consolidated
        Resources Health Care Fund II and Subsidiaries
 Consolidated
        Statements of Cash Flows
 
 
 Years
                  ended December 31,
              
              2006
              
              
              2005
              
              
              2004Cash
                  flows from operating activitiesNet
                  income
              
              $
              826,794
              
              
              $
              710,819
              
              
              $
              352,015Adjustments
                  to reconcile net income to netcash
                  provided by operating activities:Depreciation
                  and amortization
              
              
              433,482
              
              
              
              492,024
              
              
              
              484,174Bad
                  debt expense
              
              
              103,443
              
              
              
              60,400
              
              
              
              23,329Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              330,659
              
              
              
              (323,585
              )
              
              
              (573,390
              )Prepaid
                  expenses and other
              
              
              39,720
              
              
              
              (67,560
              )
              
              
              (3,754
              )Accounts
                  payable
              
              
              42,649
              
              
              
              93,851
              
              
              
              (1,913
              )Accrued
                  liabilities, deposit liabilities and deferred revenue
              
              
              111,588
              
              
              
              167,500
              
              
              
              55,120Other
                  liabilities
              
              
              53,267
              
              
              
              (102,294
              )
              
              
              161,740Net
                  cash provided by operating activities
              
              
              1,941,602
              
              
              
              1,031,155
              
              
              
              497,321Cash
                  flows from investing activitiesPayments
                  for purchases of property andequipment
              
              
              (185,814
              )
              
              
              (79,185
              )
              
              
              (167,218
              )Net
                  change in restricted escrows and otherdeposits
              
              
              (41,878
              )
              
              
              23,887
              
              
              
              65,776Net
                  cash used in investing activities
              
              
              (227,692
              )
              
              
              (55,298
              )
              
              
              (101,442
              )Cash
                  flows from financing activitiesPrincipal
                  payments on long-term debtobligations
              
              
              (131,751
              )
              
              
              (112,415
              )
              
              
              (114,161
              )Net
                  change in due to related party
              
              
              -
              
              
              
              (94,523
              )
              
              
              943Net
                  cash used in financing activities
              
              
              (131,751
              )
              
              
              (206,938
              )
              
              
              (113,218
              )Net
                  increase in cash and cash equivalents
              
              
              1,582,159
              
              
              
              768,919
              
              
              
              282,661Cash
                  and cash equivalents, beginning of year
              
              
              3,370,837
              
              
              
              2,601,918
              
              
              
              2,319,257Cash
                  and cash equivalents, end of year
              
              $
              4,952,996
              
              
              $
              3,370,837
              
              
              $
              2,601,918Supplemental
                  Disclosure:Cash
                  paid during the year for interest
              
              $
              262,482
              
              
              $
              253,348
              
              
              $
              269,765
  See
        accompanying summary of significant accounting policies and notes to
        consolidated financial statements.
  F-6
  Consolidated
        Resources Health Care Fund II and Subsidiaries
 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 (Consolidated Resources Health Care Fund II - Mayfair Nursing Care Center,
        Ltd.) and a retirement center (Consolidated Resources Health Care Fund II
        -
        Mayfair Village, Ltd.) in Ohio.
 
 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 WSC-II. On July 22, 1998,
        an
        amendment to the 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 99.5% of the
        units. All significant intercompany balances and transactions have been
        eliminated. The amount of minority interest is immaterial.
 
 *Property,
        Equipment and Long-lived Assets and Adoption of SEC Staff Accounting Bulletin
        No. 108*
 
 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.
 
 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
        Managing General Partner.
 
 The
        balance of these write-downs and the carrying values of the property and
        equipment were as follows as of December 31, 2006:
  Previously
                  Recorded Write Down
              
              
              Carrying
                  ValuesMayfair
                  Village Nursing Care Center
              
              $
              1,441,848
              
              
              $
              942,151Mayfair
                  Retirement Center
              
              
              440,602
              
              
              
              767,559$
              1,882,450
              
              
              $
              1,709,710
  F-7
  Consolidated
        Resources Health Care Fund II and Subsidiaries
 Summary
        of Significant Accounting Policies, continued
 
 
 In
        September 2006, SEC staff issued Staff Accounting Bulletin No. 108,
“*Considering the Effects of Prior Year Misstatements when Quantifying
        Misstatements in Current Year Financial Statements”*(“SAB 108”). SAB 108
        was issued in order to eliminate the diversity in practice surrounding how
        public companies quantify financial statement misstatements. SAB 108 requires
        that registrants quantify errors using both a balance sheet and income statement
        approach and evaluate whether either approach results in a misstated amount
        that, when all relevant quantitative and qualitative factors are considered,
        is
        material. SAB 108 is effective for fiscal years ending after November 15,
        2006.
        The Partnership adopted SAB 108 as of December 31, 2006.
 
 In
        applying the provisions of SAB 108, the Partnership identified misstatements
        in
        calculating depreciation which had a cumulative positive effect on partners’
equity as of December 31, 2005 of $822,924. Under our previous method of
        evaluating misstatements, we believe that the effect of these adjustments,
        individually and in the aggregate, were not material, either quantitatively
        or
        qualitatively, in any of the years affected under our previous method of
        evaluating misstatements. As allowed by the transition provisions of SAB
        108,
        the Partnership elected to not restate prior year financial statements and,
        instead, recorded the adjustments to partners’ equity as of January 1, 2006. SAB
        108 also requires the adjustment of any quarterly financial statements within
        the fiscal year of adoption for the effects of such errors on the quarters
        when
        the information is next presented. Such adjustments do not have a material
        effect on any quarter within 2006 and thus will not require previously filed
        reports with the SEC to be amended.
 
 *Depreciation
        and Amortization*
 
 Property
        and equipment are depreciated using the straight-line method over lives of
        24 to
        30 years for buildings and improvements and 5 to 10 years for equipment and
        furnishings. Depreciation expense for 2006, 2005, and 2004 was $432,445,
        $490,986 and $483,138, respectively. 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.
 
 *Operating
        Revenue, Accounts Receivable and Allowance for Doubtful
        Accounts*
 
 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.  Accounts receivable is reported
        net of
        allowance for doubtful accounts.Additions
        to the allowance are based on
        ongoing evaluations ofreceivable balances.
 
 *Income
        Taxes*
 
 No
        provision has been made in the consolidated financial statements for income
        taxes because under current law, no income taxes are paid directly by the
        Partnership. The Partnership reports certain transactions differently for
        tax
        and financial statement purposes.
 
  F-8
  Consolidated
        Resources Health Care Fund II and Subsidiaries
 Summary
        of Significant Accounting Policies, continued
 
 
 *Allocation
        of Net Income and 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 3.
 
 Net
        Losses arising from a sale or refinancing are allocated 99% to the Limited
        Partners and 1% to the General Partners.
 
 Net
        Profits arising from a Sale or Refinancing are allocated as
        follows:
 
 (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:  (i) zero;  (ii) 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
        through the date of such sale or refinancing to the extent not received through
        prior distributions of cash from operations or prior distributions of sales
        or
        refinancing proceeds; or  (iii) the amount of sale or refinancing
        proceeds distributable to the Limited Partners from such sale or
        refinancing;  over their capital account immediately prior to such
        sale or refinancing;
 
 (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: (i) zero;
        or
        (ii)the amount of sale or refinancing proceeds distributable to the General
        Partners from such sale or refinancing; over their capital account immediately
        prior to such sale or refinancing;
 
 (3)           Third,
        any remaining Net Profits are 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 accounting principles
        generally accepted in the United States of America 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.
 
 *Recent
        Accounting Pronouncements*
 
 Accounting
        standards that have been issued or proposed by the Financial Accounting
        Standards Board and other standard setting entities that do not require adoption
        until a future date are not expected to have a material impact on the
        Partnership’s consolidated financial statements upon adoption.
  F-9
  Consolidated
        Resources Health Care Fund II and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 
 
 *1.      Management
        Fees and Affiliate Transactions*
 
 A
        company
        that is related to the Partnership and to the entities who hold the minority
        interests in the Partnership’s subsidiaries manages the nursing home and
        retirement center for a fee of 5% of gross operating revenues. Fees totaling
        $557,768, $522,498 and $435,542 were paid to the management company for the
        years ended December 31, 2006, 2005, and 2004, respectively. In addition,
        an
        affiliate of the Managing General Partner was paid an oversight management
        fee
        of 1% of gross operating revenue totaling $111,389, $103,425 and $86,453
        in
        2006, 2005 and 2004, respectively.
 
 During
        2006, 2005 and 2004, the affiliate of the Managing General Partner was
        reimbursed for costs incurred in connection with the administration of
        Partnership activities in the amounts of $344,421, $310,397 and $71,668,
        respectively. These expenses are included in Partnership administration costs
        on
        the accompanying Consolidated Statements of Income.
 
 *2.      Long-Term
        Debt Obligations*
 
 Long-term
        debt obligations consisted of:
 
 2006
              
              
              2005Note
                  bearing interest at 7.5% related to Mayfair Village Nursing Care
                  Center,
                  collateralized by a first trust deed on land, buildings and furnishings
                  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
              
              $
              1,203,080
              
              
              $
              1,255,303Note
                  bearing interest at 7.5% related to Mayfair Retirement Center,
                  collateralized by a first trust deed on land, buildings and furnishings
                  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
              
              
              2,099,761
              
              
              
              2,179,2893,302,841
              
              
              
              3,434,592Less
                  current maturities
              
              
              (141,979
              )
              
              
              (131,751
              )$
              3,160,862
              
              
              $
              3,302,841
 
 
 Future
        maturities of long-term debt obligations at December 31, 2006 are as
        follows:
 
 Amount2007
              
              $
              141,9792008
              
              
              153,0012009
              
              
              164,8782010
              
              
              178,3492011
              
              
              191,471Thereafter
              
              
              2,473,163$
              3,302,841
 
  F-10
  Consolidated
        Resources Health Care Fund II and Subsidiaries
 Notes
        to
        Consolidated Financial Statements, continued
 
 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 the U.S. Department of Housing and Urban Development (“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 in the Regulatory Agreement with HUD.
        The
        Regulatory Agreement also imposes restrictions regarding cash receipts and
        disbursements and compliance with the Fair Housing Act.
 
 *3.      Distributions*
 
 Under
        the
        Partnership’s Amended and Restated Agreement and Certificate of Limited
        Partnership as approved by the Limited Partners at a special meeting held
        January 11, 2007, distributions to the partners are paid from operations
        of the
        Partnership's properties or from sales or refinancing of
        properties.
 
 Distributions
        of cash from operations, after payment of Partnership creditors, is distributed
        96% to the Limited Partners and 4% to the General Partners.
 
 Distributions
        of sale or refinancing proceeds are made in the following order:
 
 (1)           First,
        to the Limited Partners in an amount equal to their invested
        capital;
 
 (2)           Second,
        to the Limited Partners in an amount equal to:  (i) the sum of the
        amounts by which for all fiscal years, including the fiscal year in which
        such
        distribution is made, distributions of cash From operations to the Limited
        Partners in such years was less than 9% of their average invested capital
        (with
        any distributions to Limited Partners of cash from operations in any fiscal
        year
        in excess of 9% of their average invested capital to be used to reduce the
        deficiency in any other fiscal year); less (ii) the sum of all previous
        distributions of sale or refinancing proceeds;
 
 (3)           Third,
        in the case of a sale of a property or properties, and subject to certain
        specified limitations in the Partnership Agreement, to the General Partners
        in
        an amount equal to 3% of the sale price of all properties on a cumulative
        basis
        (less all prior distributions to the General Partners pursuant to this
        section);  and
 
 (4)           Fourth,
        the balance of such proceeds is then distributed 15% to the General Partners
        and
        85% to the Limited Partners.
 
 If
        on the
        date of any distribution of sale or refinancing proceeds, distributions of
        cash
        from operations to Limited Partners plus distributions of sale or refinancing
        proceeds to Limited Partners exceed 9% of Limited Partners’ average invested
        capital for each year (“excess distributions”), distributions of sale or
        refinancing proceeds shall be made to the General Partners in an amount equal
        to
        the amount of the excess distributions the General Partners would have received
        from prior sale or refinancing proceeds if the excess distributions had been
        distributed at that time plus the amount of the sale or refinancing proceeds
        to
        which the General Partners are otherwise entitled.
 
 No
        cash
        was distributed to Limited Partners during 2006, 2005 or 2004. Cumulative
        distributions paid to the Limited Partners as of December 31, 2006 are
        $3,538,203. No distributions have been made to the General
        Partners.
 
 *4.      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.  Medicaid and
        Medicare programs accounted for approximately 57%, 55% and 57% of operating
        revenue during 2006, 2005 and 2004, respectively.
  F-11
  Consolidated
        Resources Health Care Fund II and Subsidiaries
 Notes
        to
        Consolidated Financial Statements, continued
 
 
 Accounts
        receivable, recorded at net realizable value, including amounts due from
        both
        the Ohio Medicaid program and Medicare, are as follows:
 
 December
                  31,
              
              2006
              
              
              2005Ohio
                  Medicaid Program
              
              $
              -
              
              
              $
              264,745Medicare
              
              $_54,577
              
              
              $
              592,714
 
 Amounts
        due from the Ohio Medicaid program are received 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 days.
 
 *5.      Commitments
        and Contingencies*
 
 *Professional
        Liability Insurance*
 
 The
        nursing home and retirement center are covered under professional liability
        policies maintained with an insurance company affiliated with the facilities’
management company.  This policy also covers other facilities managed
        by the management company.  The cost of the policy is allocated to the
        facilities on a per-bed basis based on actuarial analyses of the claims of
        all
        of the facilities insured.
 
 *Concentrations
        of Credit Risk*
 
 At
        December 31, 2006 and 2005, the Partnership had cash on deposit at banks
        which
        exceeded the Federal Deposit Insurance Corporation limits of $100,000 per
        financial institution.  The total amount of these deposits was
        approximately $2,900,000 and $3,100,000 at December 31, 2006 and 2005,
        respectively.
 
 *6.      Accrued
        Expenses*
 
 Accrued
        expenses consisted of the following:
 
 December
                  31,
              
              2006
              
              
              2005Accrued
                  salaries and wages
              
              $
              340,348
              
              
              $
              311,174Accrued
                  property taxes
              
              
              163,121
              
              
              
              166,310Other
              
              
              327,064
              
              
              
              197,493$
              830,533
              
              
              $
              674,977
 
 *7.      Segment
        Information*
 
 During
        1998, the Partnership adopted Statement of Financial Accounting Standards
        No.
        131 (“SFAS 131”), Disclosures about Segments of an Enterprise and Related
        Information. SFAS 131 establishes standards for the way that public business
        enterprises report information about operating segments in their financial
        statements. The standard defines operating segments as components of an
        enterprise about which separate financial information is available that is
        evaluated regularly by the chief operating decision makers in deciding how
        to
        allocate resources and in assessing the performance. The Partnership's chief
        operating decision makers aggregate operating segments based on the facility
        type. Based on the quantitative thresholds specified in SFAS 131, the
        Partnership has determined that it has two reportable segments, a nursing
        home
        operation and a retirement center operation.
 
 The
        accounting policies of the operating segments are the same as those described
        in
        the Summary of Significant Accounting Policies. Segment amounts disclosed
        are
        prior to any elimination entries made in the consolidation. The chief operating
        decision-makers evaluate performance of the segments based on operating
        results.
  F-12
  Consolidated
        Resources Health Care Fund II and Subsidiaries
 Notes
        to
        Consolidated Financial Statements, continued
 
 Summary
        information by segment follows:
 
 Retirement
              
              
              Nursing
              
              
              Corporate
                  and Eliminations
              
              
              Total2006Operating
                  revenue
              
              $
              2,301,648
              
              
              $
              9,185,326
              
              
              $
              (323,045
              )
              
              $
              11,163,929Interest
                  income
              
              
              41,701
              
              
              
              38,443
              
              
              
              43,740
              
              
              
              123,884Operating
                  income (loss)
              
              
              349,350
              
              
              
              1,011,032
              
              
              
              (533,588
              )
              
              
              826,794Depreciation
                  and amortization
              
              
              236,563
              
              
              
              196,919
              
              
              
              -
              
              
              
              433,482Total
                  segment assets
              
              
              2,021,484
              
              
              
              3,722,020
              
              
              
              2,375,752
              
              
              
              8,119,256Capital
                  expenditures
              
              
              94,014
              
              
              
              91,800
              
              
              
              -
              
              
              
              185,8142005Operating
                  revenue
              
              $
              2,285,108
              
              
              $
              8,558,866
              
              
              $
              (350,579
              )
              
              $
              10,493,395Interest
                  income
              
              
              7,985
              
              
              
              4,573
              
              
              
              28,115
              
              
              
              40,673Operating
                  income (loss)
              
              
              319,927
              
              
              
              849,412
              
              
              
              (458,520
              )
              
              
              710,819Depreciation
                  and amortization
              
              
              251,036
              
              
              
              240,988
              
              
              
              -
              
              
              
              492,024Total
                  segment assets
              
              
              1,579,320
              
              
              
              2,935,768
              
              
              
              1,878,697
              
              
              
              6,393,785Capital
                  expenditures
              
              
              17,067
              
              
              
              62,118
              
              
              
              -
              
              
              
              79,1852004Operating
                  revenue
              
              $
              1,960,364
              
              
              $
              7,138,592
              
              
              $
              (368,083
              )
              
              $
              8,730,873Interest
                  income
              
              
              507
              
              
              
              660
              
              
              
              13,019
              
              
              
              14,186Operating
                  income (loss)
              
              
              75,465
              
              
              
              507,923
              
              
              
              (231,373
              )
              
              
              352,015Depreciation
                  and amortization
              
              
              251,826
              
              
              
              232,348
              
              
              
              -
              
              
              
              484,174Total
                  segment assets
              
              
              1,626,656
              
              
              
              2,925,010
              
              
              
              1,179,181
              
              
              
              5,730,847Capital
                  expenditures
              
              
              44,323
              
              
              
              122,895
              
              
              
              -
              
              
              
              167,218
 
 *8.      Subsequent
        Event -*
 
 A
        special
        meeting of the limited partners of  the Partnership was held on
        January 11, 2007.  The limited partners were asked to approve (i) a
        proposal submitted by Kodiak Partners III, Prizm Investors and Baseline
        Investors to authorize a sale of Partnership assets, liquidation and dissolution
        through a proposed amendment to the Partnership Agreement for the Partnership
        and (ii) a proposal submitted by the Managing General Partner to amend certain
        provisions of the Partnership Agreement that pertain to distributions to
        the
        partners and allocations of profits and losses with respect to a sale or
        refinancing.  Each of these proposals were approved by holders of a
        majority of the outstanding Limited Partnership Units.
  As
        contemplated by the approved amendments, the Managing General Partner solicited
        bids from three marketing agents with experience in the healthcare
        industry.  Based on the bids received, the Managing General Partner
        entered into an agency agreement with Marcus & Millichap Real Estate
        Investment Brokerage Company of Ohio on May 7, 2007.  Marcus &
Millichap has been actively pursuing potential purchasers for the two Ohio
        facilities over the past two months.  Preliminary sealed bids are
        expected by July 31st.  Based on the bids received, those parties
        tendering approved bids will be invited to participate in a subsequent round
        of
        bidding following a prescribed due diligence period.  We expect that a
        transaction with the successful bidder will be consummated during the fourth
        quarter of 2007.
  F-13
  Schedule
        II - Valuation and Qualifying Accounts
 Years
        Ended December 31, 2006, 2005 and 2004
 
 
 Balance
                  at
              
              
              Additionscharged
                  to costs
              
              
              
              
              
              Balance
                  at endbeginning
                  of year
              
              
              and
                  expenses
              
              
              Deductions
                  (1)
              
              
              of
                  year2006Allowance
                  for doubtful accounts
              
              $
              92,588
              
              
              $
              103,443
              
              
              $
              (106,435
              )
              
              $
              89,5962005Allowance
                  for doubtful accounts
              
              $
              41,654
              
              
              $
              60,400
              
              
              $
              (9,466
              )
              
              $
              92,5882004Allowance
                  for doubtful accounts
              
              $
              23,374
              
              
              $
              23,329
              
              
              $
              (5,049
              )
              
              $
              41,654
 
 
 (1)
        Represents direct write-offs of receivables.
 
 F-14