<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
December 31, 1995 2-92396
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)
Louisiana 72-1007233
(State of Organization) (IRS Employer Identification Number)
7000 Central Parkway, Suite 850
Atlanta, GA 30328
(Address of Principal Executive Office)
(770) 668-1080
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
LIMITED PARTNERSHIP UNITS NONE
Indicate by check 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 X No
------- -------
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant is not applicable.
The number of limited partnership units outstanding as of March 4, 1996 was
22,895.
The Prospectus of the Registrant dated October 11, 1984, filed pursuant to Rule
424(b) under the Securities Act of 1993 is incorporated by reference, to the
extent indicated to Part III of this report.
<PAGE> 2
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
PART I Page
<S> <C> <C>
Item 1: Business 1
Item 2: Properties 3
Item 3: Legal Proceedings 3
Item 4: Submission of Matters to a Vote of Security Holders 4
PART II
Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters 4
Item 6: Selected Financial Data 4
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations 5
Item 8: Financial Statements and Supplementary Data 6
Item 9: Disagreements on Accounting and Financial Disclosure 6
PART III
Item 10: Directors and Executive Officers of the Registrant 6
Item 11: Executive Compensation 7
Item 12: Security Ownership of Certain Beneficial Owners and Management 7
Item 13: Certain Relationships and Related Transactions 8
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 8
Signatures 10
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
RWB Medical Income Properties 1 Limited Partnership (the Partnership), is a
Louisiana limited partnership organized on July 7, 1984. A Registration
Statement filed with the Securities and Exchange Commission became effective on
October 11, 1984 and the offering of $25,000,000 units of limited partnership
interests (the Units) commenced on or about that date. The offering period was
terminated on June 30, 1986, upon the sale of 22,895 Units for an aggregate
purchase price of $22,895,000.
The purpose of the Partnership is to invest primarily in existing, improved,
medically related, income-producing commercial properties, such as medical
office buildings and nursing homes. As of December 31, 1995, the Partnership
owned two nursing home properties, with a total of 354 beds, which it operated.
The Partnership employed approximately 300 full time employees at March 5,
1996. During the year ended December 31, 1995, the Partnership sold a 180 bed
nursing home. The property had been leased to another operator through April
30, 1995 when the Partnership acquired the operator's interest in a stock
purchase. On September 1, 1995 the nursing home real estate was sold. The
operating results of this facility for 1995 are reflected as a discontinued
rental operation.
Business Strategy
The Partnership owns real property investments, primarily healthcare related,
and operates the properties until such time as a sale or other disposition
appears to be advantageous to the Limited Partners. Factors such as potential
capital appreciation, industry trends, cash flow and federal income tax
consequences to the Limited Partners will be considered before Partnership
property dispositions are made.
Long Term Care Industry
The long term care industry is composed of many facilities offering services to
subacute, skilled, assisted living, and personal care residents. The
Partnership's nursing homes are considered to be in the skilled segment of the
industry, although several of its homes offer subacute services. Subacute
services have allowed many providers to expand their services and at the same
time become more profitable. In addition, providers have taken advantage of
these higher returns to consolidate their operations either through initial
public offerings or through merging with one another. Subacute care, however,
cannot be offered in all nursing homes. Many companies have established
different criteria, including minimum population levels, in order to operate a
subacute program in a profitable manner. This is necessary due to the shorter
lengths of stay of patients and the need to obtain more and more admissions to
fill the shorter stay beds. Even with higher costs in the nursing and service
departments, nursing home industry subacute care is considered to be more cost
effective in caring for patients than hospital care.
Historically, nursing homes have derived their revenues from Medicare, Medicaid
and private pay patients. In the past few years, the industry has seen an
increase in private insurance patients and to a greater extent, contractual
services from Health Maintenance Organizations (HMO's) and Preferred Provider
Organizations (PPO's).
The industry has always faced an increasing challenge in staffing its
facilities. This is particularly true with regard to Registered Nurses,
Licensed Practical Nurses and Certified Nurse Aides. Depending upon the
geographic area, the Partnership competes with hotels, motels and restaurants
for other employees, including dietary and housekeeping workers. Approximately
fifty percent of Partnership operating costs are composed of employee salaries
and benefits. From time to time, the Federal government has proposed
increasing the minimum wage. Any increase in the minimum wage would adversely
impact nursing home providers and would have to be supported by increases in
Medicare and Medicaid reimbursement rates.
The Federal government has been discussing these very programs as it looks for
ways to down size government. The Medicaid program could be impacted through
block grant programs. Such a change would cap the federal funding of the
program. If this were the case, and the State wished to retain the current
level of services, significant additional funding would have to be found. This
is particularly true if the OBRA regulations were not
1
<PAGE> 4
repealed. The Medicare program is being examined for possible changes
including implementing cost limits on ancillary services (such as therapy
programs, equipment and diagnostic services), capital cost reductions, a
continued freeze of the routine cost limits and perhaps a prospective payment
system. The potential impact of such changes, either alone or in combination,
cannot be determined at this time.
The Partnership owns nursing facilities in the States of Florida and Alabama.
At present, each of these states' reimbursement programs reimburse the nursing
facilities based upon historical costs. Each state has developed a wait and
see attitude toward program changes until such time as the Federal government
acts.
Information regarding industry segments is not applicable for the Partnership
business.
Seasonality
The Partnership's revenue and operating income fluctuates from quarter to
quarter and tend to be higher in the third and fourth quarter of each fiscal
year. This seasonality is due primarily to the state Medicaid programs in
which the Partnership operates, rate increases which tend to take effect in
such quarters and census levels.
SERVICES PROVIDED
Routine Services
All of the nursing homes operated by the Partnership are licensed as skilled
care facilities by the appropriate state regulatory agencies. Routine services
include the provision of skilled care services and assistance with activities
of daily living, depending upon the needs of each resident. Subacute care,
including ventilator and therapy services, may also be provided as specified by
each resident's physician. Skilled nursing care is rendered 24 hours per day
by registered or licensed nurses and certified nurses aides.
Ancillary Services
The Partnership provides a variety of rehabilitative services at its facilities
for its residents. These services include physical, speech, occupational, and
respiratory therapies. The Partnership continues to expand these services as
warranted by the needs of the residents and the requirements of third-party
payor programs.
2
<PAGE> 5
ITEM 2. PROPERTIES
The Partnership originally purchased five medically related commercial
properties. At December 31, 1995, two properties were owned by the
Partnership. They are:
<TABLE>
<CAPTION> Average Daily Census
Date of No. of Medical --------------------
Property Acquisition Beds Real Estate 1995 1994 1993 1992 1991
-------- ----------- ---- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Southpoint Manor 09/03/86 230 Long-term care 216 217 223 226 222
Miami Beach, Florida facility
Merry Wood Lodge 10/01/86 124 Long-term care 121 121 123 124 124
Elmore, Alabama facility
</TABLE>
The Partnership has sold the following properties:
<TABLE>
<CAPTION>
Date of Date Type of
Property Acquisition Sold Medical Real Estate
-------- ----------- ---- -------------------
<S> <C> <C> <C>
Six Columbia Place Medical Office Building/
Tampa, Florida 09/30/86 7/29/92 Parking Facility
Clayton Medical Center Medical Office
Riverdale, Georgia 07/01/85 11/11/92 Building
Lakecrest Nursing 12/17/85 9/1/95 180 Bed
Home (1) (formally Long-term Care
Merrillville Convalescent Facility
Center)
Merrillville, Indiana
</TABLE>
(1) The facility was leased to an outside organization through December 16,
1992, as indicated in Footnote 2 of the financial statements. On December 17,
1992, the lessee was declared in default and the Partnership assumed
operations. Effective January 1, 1993, the Partnership leased the Merrillville
facility to another lessee (as indicated in notes 2 and 4 of the financial
statements). On May 1995, the Partnership purchased the stock of Atrium Living
Centers of Indiana, Inc. and canceled the 1993 lease. The Partnership operated
the facility as Lakecrest Nursing Home until the real estate was sold on
September 1, 1995.
A description of the Partnership's purchase and sale of
the properties is disclosed in Notes 1(f), 2, 3, 4, 5 and 9 of Notes to
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal actions against the Partnership. As noted
in the financial statements note 10, however, the Partnership does have
certain contingent liabilities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
3
<PAGE> 6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP
UNITS AND RELATED SECURITY HOLDER MATTERS
There is no established public trading market for the Partnership Units. There
were 2,027 limited partners as of March 4, 1996. Distributions paid per
limited partner unit for each quarter in the last five years are incorporated
by reference from Item 6 below.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the period January 1, 1991 to December 31, 1995 is
shown below:
(000's omitted except for per share data and distributions)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Total Revenue $ 13,530 12,364 11,898 11,678 10,741
Operating Income $ 998 874 1,332 1,318 1,453
Net Income (Loss) $ (902) 843 1,179 869 1,367
Per Share Data:
Net Income (Loss)
per Limited Partner
Unit $ (40.76) 34.23 47.91 34.76 55.55
Financial Condition:
Total Assets $ 13,359 17,853 18,044 18,978 19,826
Long-term Debt $ 989 1,071 1,163 716 1,237
Partner's Capital $ 10,327 15,306 15,940 16,935 17,543
Distributions per Limited
Partner Unit:
First Quarter $ 15.00 15.00 15.00 15.00 12.50
Second Quarter $ 15.00 15.00 15.00 15.00 12.50
Third Quarter $ 15.00 15.00 15.00 15.00 15.00
Fourth Quarter $ 15.00 15.00 15.00 15.00 15.00
Special Distribution of
Sale Proceeds $ 113.56 0.00 30.44 0.00 0.00
</TABLE>
Quarterly Financial data for the period January 1, 1993 to December 31, 1995
(000's omitted)
<TABLE>
<CAPTION>
1995
------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue $ 3,342 $ 3,288 $ 3,298 $ 3,602
Income from Operations 264 196 105 433
Loss on Discontinued
Operations 0 (864) (889) (30)
Net Income (Loss) 214 (709) (822) 415
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
1994
------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue $ 3,096 $ 3,071 $ 3,237 $ 2,960
Income from
Operations (Loss) 356 327 249 (58)
Net Income (Loss) 339 306 228 (30)
</TABLE>
<TABLE>
<CAPTION>
1993
------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue $ 2,756 $ 3,007 $ 3,028 $ 3,107
Income from Operations 228 407 339 358
Net Income 164 349 303 363
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Reserves
Cash and equivalent balances totaled $876,850 at December 31, 1995, a decrease
of $450,463 from the previous year. Cash provided from operations decreased to
$99,372 during the year from $2,327,655 from 1994. This decrease was primarily
due to lower collections on resident accounts receivable, particularly Medicaid
and managed care and the effect of the Lakecrest Nursing Home operations. With
the sale of the Lakecrest facility completed, it is anticipated that cash from
operations will improve in future periods.
Payments for capital expenditures were $501,500 including approximately
$250,000 for the Lakecrest facility. In 1996, the Partnership expects to incur
costs of approximately $350,000 for similar expenditures. The cash flow from
operations will determine when these expenditures are made.
During 1995, the Partnership paid regular distributions to its limited partners
totaling $60.00 per unit and equaling a 6% return on the initial investment of
$1,000 per unit. In addition, the Partnership distributed $113.56 per unit
which represented a portion of the sale proceeds of the Lakecrest Nursing Home.
Although the Partnership expects to make distributions to its limited partners
based upon cash flow generated from operations after considering cash required
for debt obligations, necessary improvements to its properties and working
capital reserves, no assurances can be given that distributions will be made in
the future.
The Partnership has a $500,000 line of credit available to it should the need
arise. At the present time, the Managing General Partner believes the
Partnership has adequate working capital and does not believe it will be
necessary to borrow additional funds.
Results of Operations
Fiscal Year 1995 Compared to 1994
The Partnership's net loss for the year ended December 31, 1995 was $901,714,
compared to a profit of $842,577 in the previous year. The loss included a
loss on disposal of the rental operation of the Lakecrest Nursing Home of
$1,575,134. Operating income for the twelve months ended December 31, 1995 was
$998,254, as compared to $874,261 for the previous year. Total revenue
increased to $13,529,775 in 1995, an increase of $1,166,000 over 1994. This
increase of 9.4% was due to improved routine services rates as well as
substantially higher ancillary services provided to residents.
Operating expenses increased $1,041,895 over 1994 due to increased wages paid
to employees, increased cost of supplies for nursing care and higher contracted
services, primarily for ancillary services.
Other income (expenses) reflects higher interest expense due to the fluctuation
of the prime rate during the year.
5
<PAGE> 8
Fiscal Year 1994 Compared to 1993
Net income for the year ended December 31, 1994 was $842,577 as compared to
$1,179,398 for the year ended December 31, 1993. The decrease in earnings was
due to lower than expected margins in the Southpoint Manor operation caused
primarily by the increase in labor costs and ancillary service expenses. It is
expected much of this expense will benefit ongoing operations as the facility
builds its reputation to treat more acute patients.
Revenues increased $466,216 while expenses increased $924,117 between years.
As stated previously, labor costs and ancillary service expenses increased
substantially during the year. In addition, plant operation repairs and
maintenance costs increased $73,232 over 1993 due to exterior painting and
sealing of the structure. General and Administrative costs were $89,489 under
the 1993 level due to excellent results from the workers compensation program
at Southpoint Manor, partially offset by higher administrative salary costs.
Employee health and welfare costs in 1993 included vacation pay accruals which
have been allocated in 1994 to the various departments. Providers fees
declined during 1994 due to changes implemented by the state.
Fiscal Year 1993 Compared to 1992
Net income increased in 1993 to $1,179,398 from $869,156 in the previous year.
The 1992 results included a loss of $208,889 on the sale of two of the
Partnership's properties.
Net patient service revenues during 1993 increased $824,341 over the prior year
primarily due to higher subacute revenues billed from its Southpoint Manor
ventilator program. Rental Income for 1993 was $330,000 while 1992 Rental
Income and Direct Financing lease income totaled $623,167. The decrease is
attributed to lower rental income recorded from the Partnership's Merrillville
lease and the sale of two properties in 1992.
Total operating expenses increased $544,829 due to higher ancillary expense
connected with the operation of the subacute program at Southpoint Manor, and
higher salaries paid to nursing personnel. Cost of rental expense declined
$140,363 due to the sale of two properties in 1992. The decrease in general
and administrative expense is attributed to cost associated with the 1992
operation of the Merrillville property offset by higher insurance charges, and
cost reimbursements.
Depreciation and amortization expense was $156,274 higher in 1993 than 1992 due
to depreciation taken on the Merrillville Indiana property for the full year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X are
included in this Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes of auditors for the Partnership during the fiscal year
1995 and 1994.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. RWB Management Corp.
(RWBMC), a Louisiana corporation , is the Managing General Partner of the
Partnership. The directors and executive officers of RWBMC as of December 31,
1995 are listed below. Directors serve for one year or until the next annual
meeting of stockholders of RWBMC or until their successors are elected and
qualified. RWBMC is a wholly-owned subsidiary of QualiCorp, Inc., a Louisiana
corporation. The directors and executive officers of QualiCorp, Inc. are also
listed
6
<PAGE> 9
below. The relationship of the Managing General Partner to its Affiliates is
described under the caption "Conflicts of Interest" at pages 28 through 30 of
the Prospectus, which pages are specifically incorporated by reference herein.
The executive officers of RWBMC and QualiCorp, Inc. are as follows:
<TABLE>
<CAPTION>
Name Age Principal Occupation During the Past Five Years
---- --- -----------------------------------------------
<S> <C> <C>
John M. DeBlois 58 Chairman of the Board since 1981. Chairman of the Board of Qualicare, Inc., a
hospital management company, from the mid 1970's to 1983.
John H. Stoddard 53 President and Chief Financial Officer from July 1, 1988. Senior Vice President
with Safecare Health Services, Inc., a health care management company, from
September 1, 1985 to March 1988. From May 1983 to August 1985, Treasurer,
Continental Health Services, a health care management company. Prior to May
1983, was Vice President - Finance with Qualicare, Inc.
Wanda J. Honea 38 Vice President - Investor Services from May 1990. Office relocation consultant
from October 1989 through April 1990. From October 1988 to October 1990, Office
Administrator for Hunton & Williams, a law firm. Prior to 1988, administrative
assistant at Hansell & Post.
</TABLE>
Mr. DeBlois and Mr. Stoddard are Directors of RWBMC and Qualicorp, Inc. There
are no family relationships among any of the above officers and/or directors.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no officers or directors. No director or officer of the
Managing General Partner received any remuneration from the Partnership for the
three years ended December 31, 1995. The Partnership paid to Qualicorp, Inc.,
the parent of RWBMC, the Managing General Partner $166,077 in 1995 as
reimbursement for administrative expenses (primarily salaries) incurred during
the year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
No person or group is known by the Partnership to own beneficially more than 5%
of the outstanding units of the Partnership.
No executive officers and directors of RWBMC owned any units in the Partnership
at December 31, 1993. RWBMC held 23 units in the Partnership at December 31,
1995. QualiCorp, Inc., parent of RWBMC, the Partnership's Managing General
Partner, held 73 units in the Partnership at December 31, 1995.
7
<PAGE> 10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Qualicorp Inc., the parent of RWBMC, charged the following amounts for
management fees and administrative expenses to the Partnership during the
periods shown:
<TABLE>
<CAPTION>
Management Administrative
Fees Fees
---- ----
<S> <C> <C>
1995 121,266 166,077
1994 132,776 179,086
1993 116,624 166,880
</TABLE>
Under the Partnership Agreement, the General Partners are entitled to
participate in distributions of the Partnership's Cash Flow as described under
the caption "Management Compensation" at pages 24 through 26 of the Prospectus.
Cash distributions of $103,400, $103,397, and $103,400, were made to the
General Partners during 1995, 1994, and 1993 respectively. The General
Partners also share in the Partnership's net profits and net losses.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. The Partnership's financial statements and supplementary information
appear in a separate section of this Form 10-K commencing on pages
referenced below:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report F-1
Financial Statements
Balance Sheets F-2
Statements of Operations F-3
Statements of Partners' Capital F-4
Statements of Cash Flow F-5
Notes to Financial Statements F-7
Information Accompanying the Basic Financial Statements
Independent Auditor's Report on Information
Accompanying the Basic Financial Statements F-18
Schedule of Valuation and Qualifying Accounts
and Reserves for Allowances for Doubtful Accounts F-19
Schedule of Consolidated Supplementary Income
Statement Information F-20
Schedule of Real Estate and Accumulated Depreciation F-21
</TABLE>
8
<PAGE> 11
2. Exhibits:
3-A. The Prospectus of the Registrant dated October 11, 1984 as
supplemented August 8, 1985, August 14, 1985, October 2, 1985 and
November 21, 1985 and filed pursuant to Rule 424(b) under the
Securities Act of 1933 and Preliminary Supplement and Amendment
Number 5 dated November 29, 1985 is hereby incorporated herein by
reference.
3-B. Amended and Restated Articles of Limited Partnership set forth as
Exhibit A to the Prospectus, incorporated herein by reference.
(b) No reports on Form 8-K have been filed during the fourth quarter of the
fiscal year ended December 31, 1995.
9
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the city of Atlanta,
state of Georgia.
RWB MEDICAL INCOME PROPERTIES 1
LIMITED PARTNERSHIP
RWB MANAGEMENT CORP.
Managing General Partner
By: /s/ John H. Stoddard Date: March 15, 1996
--------------------
John H. Stoddard
President, Director, Chief
Financial Officer and Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name
----
Position Date
-------- ----
[S] [C] [C]
/s/ John M. DeBlois Chairman of the Board March 15, 1996
- -------------------
John M. DeBlois
/s/ John H. Stoddard President, Director, March 15, 1996
- -------------------- Chief Financial Officer
John H. Stoddard and Principal Accounting
Officer
10
<PAGE> 13
SELF & MAPLES, P.A.
Certified Public Accountants
Oneonta, Alabama 35121
[LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Partners
RWB Medical Income Properties 1 Limited Partnership
We have audited the accompanying balance sheets of RWB Medical Income
Properties 1 Limited Partnership as of December 31, 1995 and 1994 and the
related statements of operations, partners' capital and cash flows for each of
the three years in the three-year period ended December 31, 1995. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain a reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
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 financial statements referred to above present fairly, in
all material respects, the financial position of RWB Medical Income Properties
1 Limited Partnership as of December 31, 1995 and 1994 and the results of its
operations and its cash flows for each of the the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Self & Maples, P.A.
January 26, 1996
Oneonta, Alabama
F-1
<PAGE> 14
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ --------------
ASSETS
------
<S> <C> <C>
Current assets
Cash and equivalents $ 876,850 $ 1,327,313
Accounts receivable, less allowance for
doubtful accounts of $837,727 in 1995
and $1,233,671 in 1994 2,614,844 1,961,437
Estimated settlements due from third parties 373,738 -
Current portion of notes receivable 1,045,102 72,600
Prepaid expenses and other assets 127,472 183,543
----------- -------------
Total current assets 5,038,006 3,544,893
Notes receivable - 779,447
Property, plant and equipment net of
accumulated depreciation and amortization 8,300,807 13,498,598
Deferred financing costs, less accumulated
amortization of $26,677 in 1995 and
$17,262 in 1994 20,401 29,816
----------- -------------
Total assets $ 13,359,214 $ 17,852,754
============ =============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities
Current portion of long term debt 84,105 86,679
Accounts payable 834,703 427,988
Accrued payroll and payroll taxes 235,579 227,285
Accrued vacation pay 146,439 146,113
Accrued real estate taxes 193 191
Accrued insurance 10,977 77,614
Accrued management fees 53,158 15,870
Patient deposits and trust liabilities 81,190 95,247
Other accrued expenses 23,357 23,531
Estimated settlements due to third parties 417,145 259,793
------------ -------------
Total current liabilities 1,886,846 1,360,311
Mortgage notes and capital lease obligations 904,605 984,037
Due to affiliates 240,973 202,846
------------ -------------
Total liabilities 3,032,424 2,547,194
------------ -------------
Partners' capital (deficit)
Limited partners 10,601,361 15,508,120
General partners (274,571) (202,560)
------------ -------------
Total partners' capital (10,326,790) (15,305,560)
------------ -------------
Total liabilities and partners' capital $ 13,359,214 $ 17,852,754
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 15
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ---------------
<S> <C> <C> <C>
Revenues
Net patient service revenue $ 13,503,777 $ 12,336,791 $ 11,852,484
Other revenue 25,998 27,096 45,187
------------- -------------- ---------------
Total revenue 13,529,775 12,363,887 11,897,671
------------- -------------- ---------------
Operating expenses
Professional care of patients 6,977,036 5,922,576 5,002,488
Dietary 1,022,914 1,006,362 945,141
Household and plant 1,169,583 1,190,677 1,027,026
General and administrative 2,122,280 2,034,703 2,124,192
Employee health and welfare 733,580 674,289 825,190
Depreciation and amortization 506,128 661,019 641,472
------------- -------------- ---------------
Total operating expenses 12,531,521 11,489,626 10,565,509
------------- -------------- ---------------
Operating income 998,254 874,261 1,332,162
------------- -------------- ---------------
Other income (expenses)
Interest income 112,432 109,051 101,833
Interest expense (105,564) (92,302) (79,793)
Provider fees (123,995) (123,995) (164,788)
------------- -------------- ---------------
Total other income (expenses) (117,127) (107,246) (142,748)
------------- -------------- ---------------
Income before recognition
of discontinued operations 881,127 767,015 1,189,414
Discontinued operations
Loss on disposal of rental
operations including the
results of operations
during phase-out period (1,575,134) - -
Income (loss) from discontinued
rental operations (207,707) 75,562 (10,016)
------------- --------------- ---------------
Net income (loss) $ (901,714) $ 842,577 $ 1,179,398
============= =============== ===============
Net income (loss) attributable to
limited partners $ (933,103) $ 783,597 $ 1,096,840
Net income (loss) attributable to
general partners 31,389 58,980 82,558
------------- --------------- ---------------
$ (901,714) $ 842,577 $ 1,179,398
============= =============== ===============
Net income (loss) per limited
partnership unit outstanding:
Continuing operations $ 35.79 $ 31.16 $ 48.31
Discontinued operations (76.55) 3.07 (.40)
-------------- --------------- ----------------
Net income (loss) per unit $ (40.76) $ 34.23 $ 47.91
============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 16
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patient care $ 11,607,874 $ 13,067,071 $ 11,708,746
Interest received 112,432 58,395 49,892
Other operating receipts 25,998 27,096 45,187
Cash paid to suppliers and employees (11,417,373) (10,608,610) (10,332,006)
Interest paid (105,564) (92,302) (79,793)
Provider fees (123,995) (123,995) (164,788)
-------------- --------------- ---------------
Net cash provided by
operating activities 99,372 2,327,655 1,227,238
-------------- --------------- ---------------
Cash flows from investing activities:
Cash payments for capital expenditures (501,500) (79,293) (157,032)
Cash proceeds from the sale of property 4,000,000 - -
Loans made - - (734,346)
Collections on loans 72,600 67,101 61,899
-------------- --------------- ---------------
Net cash provided (used) by
investing activities 3,571,100 (12,192) (829,479)
-------------- --------------- ---------------
Cash flows from financing activities:
Additional debt obligations - - 515,584
Net related party transactions 38,127 15,887 7,882
Principal payments on debt obligations (82,006) (92,564) (85,455)
Distributions to partners (4,077,056) (1,477,095) (2,174,020)
-------------- --------------- ---------------
Net cash used by
financing activities (4,120,935) (1,553,772) (1,736,009)
-------------- --------------- ---------------
Net increase (decrease) in cash
and equivalents (450,463) 761,691 (1,338,250)
Cash and equivalents, beginning of year 1,327,313 565,622 1,903,872
-------------- --------------- ---------------
Cash and cash equivalents, end of year $ 876,850 $ 1,327,313 $ 565,622
============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 17
<TABLE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<CAPTION>
1995 1994 1993
------------ ----------- --------------
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income (loss) $ (901,714) $ 842,577 $ 1,179,398
------------ ----------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 701,554 954,158 934,611
Provision for losses
on accounts receivable (395,944) 221,790 509,993
Loss on disposal of property 1,575,134 - -
(Increase) decrease in
accounts receivable (1,283,573) (487,116) (770,509)
(Increase) decrease in
third party receivables (373,738) 297,604 (222,604)
(Increase) decrease in prepaid expenses
and other assets 56,071 (21,208) (9,464)
Increase (decrease) in accounts payable
and accrued expenses 564,230 260,057 (351,628)
Increase (decrease) in
third party payables 157,352 259,793 (42,559)
------------ ----------- --------------
Total adjustments 1,001,086 1,485,078 47,840
------------ ----------- --------------
Net cash provided by
operating activities $ 99,372 $ 2,327,655 $ 1,227,238
============ =========== ==============
</TABLE>
Supplemental schedule of noncash investing and financing activities:
<TABLE>
<S> <C> <C> <C>
Note receivable taken for property sold 1,000,000 - -
Equipment purchased with capital lease - - 16,870
Debt paid with additional borrowings - - 684,416
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 18
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Limited Limited
Partners Partners General
Units Amount Partners Total
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' capital (deficit)
December 31, 1992 22,895 $17,072,001 $ (137,301) $16,934,700
Distributions to partners
($90.44 per limited
partnership unit
outstanding) - (2,070,620) (103,400) (2,174,020)
Net income - 1,096,840 82,558 1,179,398
------------ ----------- ------------ ------------
Partners' capital (deficit)
December 31, 1993 22,895 16,098,221 (158,143) 15,940,078
------------ ----------- ------------ ------------
Distributions to partners
($60.00 per limited
partnership unit
outstanding) - (1,373,698) (103,397) (1,477,095)
Net income - 783,597 58,980 842,577
Partners' capital (deficit)
December 31, 1994 22,895 15,508,120 (202,560) 15,305,560
------------ ----------- ------------ ------------
Distributions to partners
($173.56 per limited
partnership unit
outstanding) - (3,973,656) (103,400) (4,077,056)
Net income before recognition
of discontinued operations - 819,448 61,679 881,127
Loss on disposal of rental
operations including the
results of operations
during phase-out period - (1,559,383) (15,751) (1,575,134)
Loss from discontinued
rental operations - (193,168) (14,539) (207,707)
------------ ----------- ------------ ------------
Partners' capital (deficit)
December 31, 1995 $ 22,895 $10,601,361 $ (274,571) $10,326,790
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 19
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
RWB Medical Income Properties 1 Limited Partnership (the
Partnership) is a Louisiana partnership formed on July 7, 1984
to invest primarily in income-producing, health care related
properties, such as doctors' office buildings and nursing
homes. The Partnership currently is operating and holding for
investment purposes income-producing nursing homes. The
Partnership Offering (Offering) as represented by the
Partnership Prospectus (Prospectus) dated October 11, 1984,
provided for the sale of 25,000 Partnership units at a price
of $1,000 per unit. The Partnership's first closing on the
sale of units was March 20, 1985. The Offering closed on June
30, 1986.
(b) Allocation of Net Profits and Net Losses
Net profits and net losses shall be determined and allocated
as of December 31 of each year as follows:
- Net profits (losses) (exclusive of net
profits (losses) attributable to the sale or
disposition of Partnership properties) are allocated
93% to the limited partners and 7% to the general
partners.
- Net profits attributable to the sale or
disposition of a Partnership property shall be
allocated as follows:
- First, prior to giving effect to any
distributions of proceeds from the
transaction, to the general partners and the
limited partners with negative balances in
their capital accounts pro rata in proportion
to such respective negative balances;
- Second, to the general partners in
an amount necessary to make the balances
in their respective capital accounts equal to
15% of the sales proceeds remaining following
allocation to the limited partners of an
amount equal to their original capital
contribution; and
- Third, the balance, if any, to the limited
partners.
- Net losses attributable to the sale or
disposition of a Partnership property
shall be allocated in a manner similar to
above, except that limited and general
partner
F-7
<PAGE> 20
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
accounts would be reduced pro rata to the amount
of their respective capital investments, then, pro
rata to zero, and for any remaining loss, 93% to the
limited partners and 7% to the general partners. A
minimum of 1% of losses shall be allocated to the
general partner.
(c) Principles of Consolidation
The financial statements for the year ended December 31,
1995 consolidate the accounts of the Partnership and its
wholly owned subsidiary, Lakecrest Nursing Home, Inc. from May
1, 1995 (see Note 9). All material intercompany transactions
have been eliminated.
(d) Cash Distributions
Cash distributions shall be made quarterly within 45
days of the end of the quarter. Cash flow shall be
distributed 93% to the limited partners and 7% to the general
partners. Sale or financing proceeds shall be distributed 100%
to the limited partners to the extent of their original
capital contribution and then the remainder shall be
distributed 85% to the limited partners and 15% to the general
partners.
(e) Per Unit Information
Limited partnership information per unit is based on the
number of partnership units outstanding of 22,895 in 1995,
1994 and 1993. Federal taxable income per unit outstanding is
not necessarily reflective of a limited partner's actual per
unit amount due to different tax allocations with respect to
tax-exempt partners.
(f) Land, Building and Related Personal Property
Land, building and related personal property are stated
at cost. Depreciation of buildings is provided over their
estimated useful lives ranging from twenty to forty years on
the straight- line method. Equipment and other personal
property are depreciated primarily over five to seven years on
the straight-line method.
(g) Amortization
Deferred financing costs are amortized over the life of
the loan using the straight-line method. Deferred lease
commission costs were amortized over the lives of the leases
through the dates the properties were sold (see Note 2).
F-8
<PAGE> 21
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(h) Income Taxes
Income is allocated to the individual partners and,
therefore, no income taxes have been provided for in these
financial statements.
(i) Patient Service Revenues
Patient service revenue is recorded at the nursing
homes' established rates with contractual adjustments
($7,184,277 in 1995, $5,391,261 in 1994 and $4,157,574 in
1993) and provision for uncollectible accounts, bad debts
($217,721 in 1995, $(40,657) in 1994, and $57,896 in 1993) and
other discounts deducted to arrive at net patient service
revenue.
Net patient revenue includes amounts estimated by
management to be reimbursable by Medicare, Medicaid and other
third-party programs under the provisions of cost and
prospective payment reimbursement formulas in effect. Amounts
received under these programs are generally less than the
established billing rates of the nursing homes and the
difference is reported as a contractual adjustment and
deducted from gross revenue. The nursing homes recognize
estimated final settlements due from or to third-party
programs currently. Final determination of amounts earned is
subject to audit by the intermediaries. Differences between
estimated provisions and final settlement will be reflected as
charges or credits to operating revenues in the year the cost
reports are finalized.
(j) Cash Equivalents Policy
For purposes of the statement of cash flows, the
Partnership considers all highly liquid debt instruments with
an original maturity of three months or less to be cash
equivalents.
(k) Uninsured Cash Balances
The Partnership maintains cash balances in several
banks. Cash accounts at banks are insured by the FDIC for up
to $100,000. Amounts in excess of insured limits were
approximately $291,859 at December 31, 1995 and $1,071,820 at
December 31, 1994. A portion of commingled funds discussed in
Note 7., may be at risk, but the amount in excess of FDIC
limits related to the Partnership is not determinable.
F-9
<PAGE> 22
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(l) Uses of Estimates
Management uses estimates and assumptions in preparing
financial statements. Those estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities, and the reported
revenues and expenses.
Note 2. PROPERTY, PLANT AND EQUIPMENT
On September 3, 1986, the Partnership purchased Four Freedoms
Manor Nursing Home, now known as Southpoint Manor, a 230 bed skilled
nursing home in Miami Beach, Florida, for $7,350,000 plus capitalized
acquisition costs and fees of $504,602.
On October 1, 1986, the Partnership purchased Merry Wood Nursing
Home, a 124 bed skilled nursing home in Elmore, Alabama, for
$3,643,294. Merry Wood was leased to Merrywood Nursing Home, Inc.,
under a ten year lease with two five year renewal options. On January
1, 1991, the Partnership purchased the stock of Merrywood Nursing Home,
Inc. for $1. The transaction was accounted for as a purchase.
Effective July 1, 1992 Merrywood Nursing Home, Inc. was merged with the
Partnership. The lease agreement with Merrywood Nursing Home, Inc.,
described in the preceding paragraph, was terminated in conjunction
with the merger.
On December 17, 1985, the Partnership purchased Merrillville
Convalescent Center (Merrillville), a 180 bed skilled nursing home in
Merrillville, Indiana for $5,376,348. Until December 17, 1992,
Merrillville was leased under two twenty year leases which were
accounted for as capital leases (see Note 4). One lease was for the
building, equipment and related land, and the other was for land
adjacent to the nursing home (17.9 acres). On December 17, 1992, the
lessor was declared to be in default on the lease and the Partnership
assumed operations of the facility. The value of the net investment in
direct financing lease along with unamortized deferred lease
commissions was allocated to the cost of land, building and equipment
at the termination of this lease. No gain or loss was recognized
related to the termination of the lease. Effective January 1, 1993 the
Partnership leased the Merrillville facility under an operating lease
(see Note 4). Effective September 1, 1995, the Partnership sold the
facility (see Note 9).
A summary of property, plant, equipment and accumulated
depreciation at December 31, 1995 and 1994 is as follows:
F-10
<PAGE> 23
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 525,000 $ 1,209,226
Buildings and improvements 11,590,498 16,115,557
Furniture and equipment 1,322,600 1,509,840
Property under capital leases 16,870 50,033
----------- -----------
Total 13,454,968 18,884,656
Accumulated depreciation
and amortization (5,154,161) (5,386,058)
------------ -----------
Net property, plant
and equipment $ 8,300,807 $13,498,598
=========== ===========
</TABLE>
Note 3. NOTES RECEIVABLE
The Articles of Limited Partnership state that no General
Partner shall have the authority to cause the Partnership to make loans
other than in connection with the purchase, sale or disposition of
partnership property. The General Partner believes the following loans
were necessary to preserve the Partnership's assets. The first loan
described was made in order to remove the bankrupt manager of the
Partnership's property. The second loan was made to finance needed
improvements and operations neglected by an insolvent lessee.
The first note is from the manager of one of the nursing homes
owned by the Partnership. The note requires monthly payments of $6,616
through July of 1996 and bears interest at 8%. These moneys were loaned
as part of an acquisition and financing agreement dated May 23, 1991,
whereby the Partnership contracted with a replacement manager of the
Partnership's facility located in Miami Beach, Florida (Southpoint
Manor). As part of the agreement, the Partnership agreed to retain the
manager of the Southpoint Manor facility for a period of no less than
thirty-six (36) months in consideration for its agreement to manage the
facility and in consideration for its agreement to pay certain sums to
the former management company.
Outstanding receivables related to this note totaled $45,102 and
$117,701 at December 31, 1995 and 1994, respectively.
The second note was from the lessee of the Merrillville, Indiana
facility. The lessee agreed to continue to operate the facility and
make the improvements necessary to meet certification requirements if
the Partnership would provide current operating capital and suspend
required lease payments (see Note 4). The loan, as amended, was a
$1,500,000 revolving credit agreement that was to accrue interest at
prime plus 1% with payments of principal and interest deferred until
July 1, 1995. The receivable related to this note totaled $734,346 at
December 31, 1994. In May of 1995
F-11
<PAGE> 24
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
the Partnership purchased the stock of the lessee corporation
(Note 9), and forgave the note receivable.
A third note in the amount of $1,000,000 from the purchaser of
the Merrillville, Indiana facility was accepted by the Partnership in
September 1995 (see Note 9). This note, made in conjunction with the
sale of the facility, bears interest at 9%, and calls for payments of
interest only through August 31, 1996, at which time the note is due
and payable.
Note 4. PROPERTY LEASES
Merrillville was accounted for as a capital lease until December
17, 1992 as explained in Note 2. Bad debt expense related to
Merrillville's deferred financing lease was recorded in the amount of
$110,879 in 1993 in addition to $405,784 written off in prior years.
Effective January 1, 1993 the Partnership leased the
Merrillville facility under an operating lease which provided for
monthly rental payments of $55,000. The lease, however, allowed the
tenant to leave the monthly lease payments unpaid until August 15, 1993
with no interest or penalties, to allow the tenant to correct the
operating deficiencies of the prior tenant (see Note 2).
Rental income for Merrillville's lease was $220,000 in 1995, and
$660,000 in 1994 and 1993. Interest totaling $74,628 was accrued in
1994 and interest of $15,837 and penalties of $6,600 were assessed
related to this receivable in 1993. Rental receivables totaled
$1,026,210 at December 31, 1994. Collectibility of some of this rental
income and related penalties and interest was considered doubtful and,
accordingly, reserves of $272,447 in 1994 and $341,218 in 1993 were
charged to bad debt expense. Loans for operating expenses, as
explained in Note 3., were made to the Lessee. The Partnership has
other contractual agreements, as explained in Note 8, with entities
that shared common ownership with the lessee of the Merrillville
facility.
Effective May 1, 1995, the Partnership purchased the stock of
the lessee of the Merrillville facility as part of a plan to
discontinue rental operations. In September 1995 the Partnership sold
the Merrillville facility and terminated the lease (Note 9).
Note 5. MORTGAGE NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS
Mortgage notes and capitalized leases at December 31, 1995, and
1994 are summarized as follows:
F-12
<PAGE> 25
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Prime plus 1% (9.5% at
December 31, 1995 and
December 31, 1994) mortgage
note payable in monthly prin-
cipal installments of $6,667
plus interest, with a final
balloon principal payment
due March 1, 1998 $ 980,000 $ 1,056,200
Capitalized lease obligations
payable monthly with interest
rates from 8% to 13.46% 8,711 14,516
----------- -----------
988,711 1,070,716
Less amounts due in one year
or less 84,105 86,679
----------- -----------
$ 904,606 $ 984,037
=========== ===========
</TABLE>
The mortgage note is secured by the Southpoint and Merry Wood
real estate owned by the Partnership. The General Partner has
guaranteed the debt, as well as pledged its stock and partnership
interest. The management companies (see Note 8) have also guaranteed
the debt and entered into a negative pledge agreement whereby they will
not pledge, transfer or encumber their stock while the loan is
outstanding. All management fees are subordinate to the debt.
The aggregate annual maturities of mortgage notes payable and
capital lease obligations are as follows:
<TABLE>
<S> <C>
1996 $ 84,105
1997 84,105
1998 821,368
-----------
989,578
Less amounts representing
interest on capital lease
obligations (867)
-----------
Net present value $ 988,711
===========
</TABLE>
Note 6. INCOME TAXES
No provision for income taxes is made in the financial statements
since taxable income is reported in the income tax returns of
its partners. Differences between the net income as reported in the
financial statements and Federal taxable income arise from the nature
and timing of certain revenue and expense items. The
F-13
<PAGE> 26
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
following is a reconciliation of reported net income and Federal
taxable income:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income as reported $ (901,714) $ 842,577 $1,179,398
Adjustments:
Gain on sale of Merrillville 2,343,824 - -
Income from consolidated
C-corporation (142,073) - -
Depreciation differences 36,485 181,284 79,429
Insurance deductible (48,000) - 48,000
Travel and entertainment 8,797 11,488 2,380
Bad debt reserve (582,317) 231,790 (6,670)
Vacation accrual 327 (1,880) 6,031
----------- ---------- ----------
Federal taxable income $ 715,329 $1,265,259 $1,308,568
=========== ========== ==========
Federal taxable income per
limited partnership unit
outstanding $ 29.06 $ 51.40 $ 53.15
=========== ========== ==========
</TABLE>
Note 7. RELATED PARTY TRANSACTIONS
QualiCorp, Inc., the parent of RWB Management Corp. (the Managing
General Partner of the Partnership), charged the Partnership property
management fees totaling $121,266 in 1995, $132,776 in 1994 and
$116,624 in 1993. QualiCorp charged the Partnership administrative
expenses totaling $166,077 in 1995, $179,086 in 1994, and $166,880 in
1993.
Details of the amounts due to affiliates at December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Due to affiliates of the general
partner $ 51,783 $ -
Due to QualiCorp 189,190 202,846
--------- ----------
$ 240,973 $ 202,846
========= ==========
</TABLE>
During the year, the General Partners established a pooled
investment account in which the General Partners and the partnerships
in which they act as general partners could participate. This account
was used by those entities to invest overnight cash balances, and
borrow funds when an entity needed temporary access to funds. Each
entity received its share of interest earned monthly, and was charged
interest on any funds borrowed.
The Articles of Limited Partnership of the partnerships involved
state that no General Partner shall have the authority to cause those
partnerships to make loans other than in connection with the
F-14
<PAGE> 27
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
purchase, sale or disposition of partnership property. The
Articles of Limited Partnership of those partnerships also state that
the partnerships' funds may not be commingled with any other entities'
funds except as necessary for the operation of those partnerships.
At December 31, 1995, the Partnership had borrowed $51,783 from
the other entities, and had earned net interest of $14,967 from this
arrangement.
Note 8. CONTRACTUAL AGREEMENTS
On June 20, 1991, the Partnership entered into a management agreement
whereby the Manager is required to perform certain services for the
Southpoint facility. The agreement had an initial three-year term and
was extended for three additional years in 1994. Fees were based on
6% of gross collected operating revenues not to exceed 6% of the gross
collected operating revenues from July 1, 1990 to July 1, 1991 and
increased by an inflation factor in 1992 and thereafter. Management
fees charged to the Partnership were $461,653 in 1995, $443,897 in
1994, and $430,968 in 1993.
On July 1, 1992, the Partnership entered into a management agreement
whereby the Manager is required to perform certain services for the
Merry Wood facility. The agreement had an initial five-year term with
one additional five-year option. Fees were based on 5% of gross
collected operating revenues, excluding revenues solely attributed to
reimbursement for provider taxes. Management fees charged to the
Partnership were $176,247 in 1995 and $172,603 in 1994.
The management agreements were amended on January 1, 1995. The
amendment calls for a fixed monthly management fees of $38,471 at
Southpoint and $14,687 at Merry Wood, with a cost of living factor
equal to the greater of 4% per annum or the increase in the Consumer
Price Index or such other measure mutually agreeable to the parties.
The agreements expire December 31, 1998. Both agreements contained
termination on sale clauses that were amended to base the fee on a sum
equal to the discounted present value of the monthly management fee as
of the date of termination of the agreement times the number of months
remaining in the management agreement discounted to the date of
termination at an annual interest rate of ten percent (10%).
The above agreements are with entities that are commonly owned. The
property manager who owes the Partnership the first of the notes
receivable described in Note 3 along with the lessor of the
Merrillville, Indiana property who, prior to being purchased by the
Partnership (Note 9), owed the Partnership the second note receivable
described in Note 3 and the unpaid lease payments
F-15
<PAGE> 28
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
described in Note 4, are or were commonly owned with the above
entities. Additionally, the seller of the equipment purchased at
Merrillville as described in Note 9, is commonly owned with the above
entities.
Note 9. DISCONTINUED OPERATIONS
Effective May 1, 1995, the Partnership purchased the stock of the
lessee, now known as Lakecrest Nursing Home, Inc. for $500. The
Partnership took over operations with the intent of selling the
facility and discontinuing all rental activities. The transaction is
accounted for as a purchase. In June 1995, the Partnership purchased
various items of equipment that had been leased by Lakecrest Nursing
Home, Inc. for $218,855. As explained in Note 8, the Partnership has
other contractual agreements, with entities that shared common
ownership with the lessee of the Merrillville facility. On September
1, 1995, the Partnership sold the Merrillville facility in exchange
for a total of $5,000,000, payable with $4,000,000 in cash and note
receivable of $1,000,000 (Note 3). The results of operations are
consolidated for the period from May 1, 1995 to December 31, 1995, and
are included in the loss on disposal of rental operations. Pro forma
results of operations for December 31, 1995 and 1994 as though the
Partnership and Lakecrest Nursing Home, Inc. had combined at the
beginning of 1994 would have been stated as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues $14,897,120 $16,493,451
=========== ===========
Net income $(1,099,390) $ 441,904
=========== ===========
Net income per limited
partnership unit outstanding $ (48.79) $ 17.95
=========== ===========
</TABLE>
Loss on disposal of rental operations reflects the loss related
to operations subsequent to April 30, 1995 totaling $336,183 on
revenues of 1,414,947 and loss on sale of assets totaling $1,238,951.
Note 10. CONTINGENCIES
The Partnership maintains insurance or reserves which it
believes are adequate to meet the needs of the Partnership. While the
Partnership has been named as a defendant in several lawsuits, nothing
has come to the attention of the Partnership which leads it to believe
that it is exposed to a risk of material loss not covered by insurance
or reserves.
The on-site waste water treatment plant at the Merry Wood Lodge
facility has had numerous operational difficulties since it was
installed, which has caused the effluent to exceed the limits of
F-16
<PAGE> 29
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
the facility's permit. The Partnership is evaluating proposals
to build a new waste water treatment plant to avoid liability
associated with provisions of the Federal Clean Water Act. The
expected cost of constructing the new plant is estimated to be about
$92,000.
Note 11. MAJOR SOURCES OF REVENUE
The Partnership provides patient care services under various
third party agreements. The principal sources of revenue under these
contracts are derived primarily through the Medicaid and Medicare
programs, as well as contracts with private pay patients who do not
qualify for assistance from the other programs. The percentage of the
Joint Venture's income from each of these sources for the years ended
December 31, 1995, 1994, and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Private pay patients 17.87% 15.71% 13.96%
Medicaid 50.57% 50.96% 60.01%
Medicare 31 .56% 33.33% 26.03%
---------- --------- ---------
Total 100 .00% 100.00% 100.00%
========== ========= =========
</TABLE>
The percentage attributable to private pay patients includes
only amounts due for services where the primary payer is a private
source. The Medicaid and Medicare percentages include amounts due from
those programs as well as the patient's financial responsibility
incurred under these contracts.
F-17
<PAGE> 30
SELF & MAPLES, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
ONEONTA, ALABAMA 35121
AMERICAN INSTITUTE
OF CERTIFIED PUBLIC ACCOUNTANTS
THOMAS E. SELF, C.P.A.
DON MAPLES, C.P.A. ALABAMA SOCIETY
B. MARTIN COPELAND, C.P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
------------- ------------
CONNIE T. HARVEY, C.P.A. 1601 2ND AVENUE EAST
RANDY M. JOHNSTON, C.P.A. P.O. BOX 489
ROGER D. LOGGINS, C.P.A. ONEONTA, ALABAMA 35121
MARK S. SIMS, C.P.A. ------------
LINDA ROMBERG YORK, C.P.A. TELEPHONE: (205) 625-3472
GWIN E. DAVIS, P.A. TELECOPIER: (205) 274-0182
ROYCE E. GARGUS, P.A.
INDEPENDENT AUDITOR'S REPORT
ON ADDITIONAL INFORMATION
To the Partners
RWB Medical Income Properties 1 Limited Partnership
Our report on our audits of the basic financial statements of RWB
Medical Income Properties 1 Limited Partnership for 1995 appears on
page 1. Those audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The Schedule of
Valuation and Qualifying Accounts and Reserves for Allowances for
Doubtful Accounts, Schedule of Consolidated Supplementary Income
Statement Information, and Schedule of Real Estate and Accumulated
Depreciation are presented for purposes of additional analysis and are
not required parts of the basic financial statements. Such information
has been subjected to the auditing procedures applied to the audits of
the basic financial statements, and in our opinion, is fairly stated in
all material respects in relation to the financial statements taken as
a whole.
/s/ Self & Maples, P.A.
January 26, 1996
Oneonta, Alabama
F-18
<PAGE> 31
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 1,233,671 $ 1,001,881 $ 491,887
Amounts charged to revenue 160,323 (75,331) 5,131
Bad debt expense related to
Merrillville's deferred
financing lease - - 110,879
Bad debt expense and recording
of losses realized related to
Merillville's operating lease (613,665) 272,447 341,218
Write-offs 57,398 34,674 52,766
----------- ----------- -----------
Balance at end of year $ 837,727 $ 1,233,671 $ 1,001,881
=========== =========== ===========
</TABLE>
F-19
<PAGE> 32
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
SCHEDULE X
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Professional care of patients
Salaries and wages $3,982,347 $3,765,545 $3,355,269
Ancillary service expense 1,927,683 1,258,187 831,319
Supplies & pharmaceuticals 625,828 545,257 448,444
General and administrative
Salaries and wages 359,481 343,421 297,993
Accounting and auditing 117,375 86,617 84,433
Insurance 316,009 351,362 523,139
Property tax 133,409 108,829 96,158
Management fees 637,900 616,500 595,072
Cost reimbursement 166,077 179,086 166,880
Dietary
Food cost 433,544 448,072 428,231
Household and plant
Repairs and maintenance 107,613 139,529 66,297
Utilities 267,383 267,843 251,068
Depreciation and amortization $ 701,554 $ 954,158 $ 934,611
========== ========== ==========
</TABLE>
F-20
<PAGE> 33
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED
TO PARTNERSHIP(A) SUBSEQUENT TO
ACQUISITION
BUILDING AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST
----------- ------------ ---- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
SOUTHP0INT MANOR $567,310 $500,000 $ 7,354,602 $1,552,826 $ -
MERRYWOOD 421,401 25,000 3,743,335 279,205 -
-------- --------------------- -----------------------
$988,711 $525,000 $11,097,937 $1,832,031 $ -
======== ===================== =======================
<CAPTION>
LIFE ON WHICH
GROSS AMOUNT AT WHICH CARRIED DEPRECIATION
AS OF DECEMBER 31, 1995(B) IN LATEST
STATEMENT OF
BUILDING AND ACCUMULATED DATE OF DATE OPERATION IS
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
----------- ---- ------------ ----- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
SOUTHP0INT MANOR $500,000 $ 8,907,428 $ 9,407,428 $3,824,431 1984 09/03/86 30 YEARS
MERRYWOOD 25,000 4,022,540 4,047,540 1,329,730 1965/1975 10/01/86 30 YEARS
------------------------------------ ----------
$525,000 $12,929,968 $13,454,968 $5,154,161
==================================== ==========
</TABLE>
(A) The initial cost to the Partnership represents the original purchase price
of the properties.
(B) The aggregate cost of real estate owned at December 31, 1995 for Federal
Income tax purposes was approximately $13,454,968
(C) Reconciliation of real estate owned at December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period $18,884,656 $18,805,363 $18,631,462
Additions 501,500 79,293 173,901
Reductions (142,335) - -
Sale of Merrillville facility (5,788,853) - -
----------- ----------- -----------
Balance at end of period $13,454,968 $18,884,656 $18,805,363
=========== =========== ===========
</TABLE>
(D) Reconciliation of accumulated depreciation:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of period $5,386,058 $4,441,316 $3,514,552
Depreciation expense 701,554 944,742 926,764
Reductions (142,335) - -
Sale of Merrillville facility (791,116) - -
---------- ---------- ----------
Balance at end of period $5,154,161 $5,386,058 $4,441,316
========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS OF RWB MEDICAL INCOME PROPERTIES 1 LIMITED
PARTNERSHIP FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 876,850
<SECURITIES> 0
<RECEIVABLES> 3,452,571
<ALLOWANCES> 837,727
<INVENTORY> 0
<CURRENT-ASSETS> 5,038,006
<PP&E> 13,454,968
<DEPRECIATION> 5,154,161
<TOTAL-ASSETS> 13,359,214
<CURRENT-LIABILITIES> 1,886,846
<BONDS> 904,605
0
0
<COMMON> 0
<OTHER-SE> 10,326,790<F1>
<TOTAL-LIABILITY-AND-EQUITY> 13,359,214
<SALES> 0
<TOTAL-REVENUES> 13,529,775
<CGS> 0
<TOTAL-COSTS> 12,531,521
<OTHER-EXPENSES> 11,563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105,564
<INCOME-PRETAX> 881,127
<INCOME-TAX> 0
<INCOME-CONTINUING> 881,127
<DISCONTINUED> (1,782,841)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (901,714)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>5.02 (31) REPRESENTS TOTAL PARTNERSHIP CAPITAL INCLUDING NET INCOME NET
OF DISTRIBUTIONS.
</FN>
</TABLE>
