<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
<TABLE>
<S> <C>
For the Fiscal Year Ended Commission File Number
December 31, 1996 2-92396
</TABLE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
Louisiana 72-1007233
(State of Organization) (IRS Employer Identification Number)
</TABLE>
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:
<TABLE>
<S> <C>
Name of Each Exchange
Title of Each Class on Which Registered
-------------------- ---------------------
LIMITED PARTNERSHIP UNITS NONE
</TABLE>
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 February 27, 1997 was
22,895.
The Prospectus of the Registrant dated October 11, 1984, filed pursuant to Rule
424(b) under the Securities Act of 1933 is incorporated by reference, to the
extent indicated in Part III of this report.
<PAGE> 2
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I
Item 1: Business 1
Item 2: Properties 3
Item 3: Legal Proceedings 4
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 7
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
Signatures 8
</TABLE> 10
<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 #D$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, 1996, the Partnership
owned and operated two nursing home properties, Southpoint Manor in Miami Beach,
Florida, and Merry Wood Lodge in Elmore, Alabama, with a total of 354 beds. The
Partnership employed approximately 300 full time employees at December 31, 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 and 1996 are reflected in the Partnership's financial
statements 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 are considered before Partnership property
dispositions are made.
The Partnership (the "Partnership") has entered into an asset Purchase and Sale
Agreement effective as of February 3, 1997 (the "Sale Agreement"), by and among
the Partnership, RWB Management Corp., the managing general partner of the
Partnership, and Omega Healthcare Investors, Inc. ("Omega"). The Sale Agreement
calls for the sale to Omega of the Partnership's interests in its facilities,
and the personal property and intangible assets related to the operation of
these facilities.
The description of the Sale Agreement set forth herein does not purport to be
complete and is qualified in its entirely by the provisions of the Sale
Agreement, filed as an exhibit to the Company's Current Report on Form 8-K dated
February 18, 1997, and as Appendix A to the Partnership's Consent Solicitation
Statement filed March 12, 1997.
Under the Sale Agreement, the Partnership will receive total sales consideration
of $18,600,000, which will be reduced by accrued expenses of approximately
$332,795 for vacation pay, sick pay, taxes and trust fund obligations as
provided in the Sale Agreement, by approximately $4,206,082 of closing costs,
brokerage fees, third party settlements and other obligations, and by
approximately $893,333 for the payment of debt, resulting in estimated net
proceeds from the sale of approximately $13,167,790. These estimated net
proceeds will be augmented by estimated current assets in excess of current
liabilities of approximately $2,818,245 which will increase the total amount
estimated to be available for distribution to approximately $15,986,035, which
will be distributed to the Partnership's limited partners (the "Limited
Partners") in three installments as follows:
1. First Installment. The Limited Partners will receive a check in the amount of
$515 per unit, payable within 30 business days of the closing and surrender
of Partnership certificates (an anticipated aggregate distribution to all of
the Limited Partners of $11,795,700);
2. Second Installment. A second distribution of approximately $158 per unit is
anticipated to be made within one year of the closing. This distribution is
primarily attributable to the collection of accounts receivable in the period
subsequent to the closing less the payment of accounts payable and other
liabilities (an anticipated aggregate distribution to all of the Limited
Partners of $3,615,400); and
1
<PAGE> 4
3. Final Installments. A final distribution of up to $25 per unit is anticipated
to be made following the expiration of the Partnership's representations and
warranties to Omega and any additional period required to finally resolve any
claims for indemnification against the Partnership brought prior to the
termination of such period (an anticipated aggregate distribution to all of
the Limited Partners of $574,900).
The closing of the Sale Agreement is subject to a number of conditions, as
outlined in the Sale Agreement, including the approval of the Sale Agreement by
the Limited Partners and the closing of facility acquisition agreements between
Omega and three other affiliated partnerships. The approval of one of the
partnerships has already been obtained and the consents of the other
partnerships, including the Limited Partners, are being solicited.
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 facilities
are in the skilled segment of the industry, although Southpoint Manor has
subacute services, such as respiratory and ventilator programs since September
1993, and during 1996 the Merry Wood Lodge added similar services.
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 a challenge in staffing facilities, particularly
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
staff. Approximately fifty percent of the Partnership's operating costs consist
of employee salaries and benefits. In 1995 a federal law was passed which
increased the minimum wage level to $4.75 per hour in 1996 and to $5.15 per hour
in 1997. Management of the Partnership has already responded to these increases,
and to the corresponding "ripple effect" for wages of employees paid above the
new minimum wage by increasing wages accordingly. To date, the State of Florida
has not agreed to increase reimbursement rates to compensate for the federally
mandated increases in the minimum wage. The State of Alabama increased its
reimbursement rates in response to the 1996 minimum wage increase, but Alabama
has not agreed to increases to compensate providers, including the Partnership,
for the 1997 minimum wage increase or for "ripple effect" wage increases made
necessary by the 1997 minimum wage increase.
The federal government has been discussing changes in Medicare and Medicaid as
it looks for ways to downsize government. The Medicaid program could be impacted
through block grants or level funding programs which would cap federal funding.
If federal funding were capped, and a state wished to retain the current level
of services, significant additional funding would be required, particularly if
the Omnibus Budget Reconciliation Act regulations were not repealed. The
Medicare program is being examined by the federal government for possible
changes, including the implementation of 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.
Information regarding industry segments is not applicable to the Partnership's
business.
Seasonality
The Partnership's revenue and operating income fluctuate from quarter to quarter
and tend to be higher in the third and fourth quarter of each fiscal year. These
quarterly fluctuations are primarily due to the fact that, for the state
Medicaid programs in which the Partnership operates, rate increases tend to take
effect in such quarters. The Southpoint Manor facility also tends to experience
census declines during the summer as some Miami-area residents temporarily move
to cooler climates, leading to lower revenue and operating income during such
months.
2
<PAGE> 5
SERVICES PROVIDED
Routine Services
Both facilities are licensed as skilled-care facilities by the appropriate state
regulatory agencies. Routine services provided by the facilities include
skilled-care services and assistance with daily living activities, depending
upon the needs of each resident. Subacute care, such as ventilator and
respiratory therapy, 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 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. During 1996, the Partnership added subacute care capabilities to
the Merry Wood Lodge facility.
ITEM 2. PROPERTIES
The Partnership originally purchased five medically related commercial
properties. At December 31, 1996, two properties were owned by the Partnership.
They are:
<TABLE>
<CAPTION>
Average Daily Census
Date of No. of Medical --------------------------------
Property Acquisition Beds Real Estate 1996 1995 1994 1993 1992
-------- ----------- ------ -------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Southpoint Manor 09/03/86 230 Long-term care 219 216 217 219 223
Miami Beach, Florida facility
Merry Wood Lodge 10/01/86 124 Long-term care 121 121 121 123 122
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 09/30/86 7/29/92 Medical Office Building/
Tampa, Florida Parking Facility
Clayton Medical Center 07/01/85 11/11/92 Medical Office Building
Riverdale, Georgia
Lakecrest Nursing Home (1) 12/17/85 9/1/95 180 Bed Long-term Care
(formally Merrillville Convalescent Center) Facility
Merrillville, Indiana
</TABLE>
(1) The facility was leased to an outside organization through December 16,
1992, as indicated in Footnote 3 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 3, 4 and 5 of the financial statements).
In May 1995, the Partnership purchased the stock of Atrium Living Centers of
Indiana, Inc. and canceled the 1993 lease. The Partnership operated the Atrium
facility as Lakecrest Nursing Home until the real estate was sold on September
1, 1995.
3
<PAGE> 6
A description of the Partnership's purchase and sale of the properties is
disclosed in Notes 1(f), 3, 4, 5, 6, 10 and 14 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 11, however, the Partnership does have certain
contingent liabilities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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 1,957 limited partners as of February 27, 1997. 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, 1992 to December 31, 1996 is
shown below: (000's omitted except for per share data and distributions)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Total Revenue.................................. $15,227 13,530 12,364 11,898 11,678
Operating Income............................... $ 939 998 874 1,332 1,318
Income (Loss) on Discontinued Operations....... (308) (1783) 0 0 0
Net Income (Loss).............................. $ 508 (902) 843 1,179 869
Per Share Data:
Net Income (Loss) per Limited Partner Unit..... $ 20.64 (40.76) 34.23 47.91 34.76
Financial Condition:
Total Assets................................... $13,104 13,359 17,853 18,044 18,978
Long-term Debt................................. $ 893 989 1,071 1,163 716
Partner's Capital.............................. $ 9,992 10,327 15,306 15,940 16,935
Distributions per Limited Partner Unit:
First Quarter.................................. $ 8.56 15.00 15.00 15.00 15.00
Second Quarter................................. $ 8.56 15.00 15.00 15.00 15.00
Third Quarter.................................. $ 8.56 15.00 15.00 15.00 15.00
Fourth Quarter................................. $ 8.56 15.00 15.00 15.00 15.00
Special Distribution of Sale Proceeds.......... $ 0.00 113.56 0.00 30.44 0.00
</TABLE>
4
<PAGE> 7
Quarterly Financial data for the period January 1, 1994 to December 31, 1996
(000's omitted):
<TABLE>
<CAPTION>
1996
-----------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue............................................... $3,746 $3,720 $3,845 $3,916
Operating Income............................................ 326 211 233 169
Income (loss) on Discontinued Operations.................... (24) 26 (99) (211)
Net Income (loss)........................................... 231 213 109 (45)
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue............................................... $3,299 $3,218 $3,299 $3,714
Operating Income............................................ 299 146 107 446
Income (loss) on Discontinued Operations.................... (41) (810) (889) (43)
Net Income (Loss)........................................... 214 (709) (822) 415
</TABLE>
<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
Operating Income(Loss)...................................... 356 327 249 (58)
Net Income (Loss)........................................... 339 306 228 (30)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Reserves
Cash and equivalent balances for the Partnership totaled $766,621 at December
31, 1996, a decrease of $110,229 from the previous year. Cash provided from
operations decreased to $15,822 during 1996 from $99,372 during 1995. This
decrease was primarily due to lower collections on residents accounts
receivable, particularly Medicare, Medicaid and managed care. Cash paid to
suppliers and employees increased during 1996 because the Partnership entered
into certain ancillary service contracts which require payment for services
rendered prior to the Partnership's receipt of payments from Medicare and
managed care payors.
Payments for capital expenditures were $252,550 in 1996 compared to $501,500 in
1995. During 1996, the Partnership collected notes receivable of $1,045,102,
including $1,000,000 due from the sale of the Lakecrest Nursing Home.
The Partnership has a $500,000 line of credit available to it should the need
arise. As of December 31, 1996 the Partnership had adequate working capital, and
no advances had been drawn under the line of credit.
During 1996, the Partnership paid regular distributions to Limited Partners
totaling $34.24 per unit, equaling a 4% return on the initial investment of
$1,000 per unit less $144 return of capital from sale proceeds returned in prior
years. 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.
Results of Operations
Fiscal Year 1996 Compared to 1995
The Partnership's net income for the year ended December 31, 1996 was $508,160,
compared to a loss of $901,714 in the previous year. The 1996 income included a
loss of $308,413 from discontinued operations,
5
<PAGE> 8
primarily the Lakecrest Nursing Home. The 1995 loss included a loss of $207,707
from discontinued operations and a loss of $1,575,134 on the disposal of rental
operations.
Net operating income for 1996 was $938,712, compared to $998,254 in 1995.
Revenue increased to $15,226,616 in 1996, an increase of $1,696,841 over 1995.
This increase of 12.5% was due to improved Medicare reimbursement rates and
higher managed care per diem rates along with higher average daily census.
Operating expenses increased $1,756,383 in 1996 over 1995 due to increased wages
paid to employees, increased contract services expense (primarily ancillary
services) and general and administrative expenses, including higher legal fees,
management fees and insurance costs.
Other income (expenses) reflects lower interest income and lower interest
expense.
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.
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.
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
1996 and 1995.
6
<PAGE> 9
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,
1996 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 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 Positions and Recent Principal Occupations
---- --- ------------------------------------------
<S> <C> <C>
John M. DeBlois 60 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 54 President and Chief Financial Officer since July 1, 1988.
Senior Vice President of 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 39 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, 1996. The Partnership paid to Qualicorp, Inc.,
the parent of RWBMC, the Managing General Partner $175,565 in 1996 as
reimbursement for administrative expenses (primarily salaries) incurred during
the year. In addition, during 1996, the Partnership paid to Qualicorp, Inc.
$141,923 for property management fees.
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, 1996. RWBMC held 23 units in the Partnership at December 31,
1996. QualiCorp, Inc., parent of RWBMC, the Partnership's Managing General
Partner, held 73 units in the Partnership at December 31, 1996.
7
<PAGE> 10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Qualicorp Inc., the parent of RWBMC, charged the following amounts for property
management fees and administrative expenses to the Partnership during the
periods shown:
<TABLE>
<CAPTION>
Property
Management Administrative
Fees Expenses
--------- --------------
<S> <C> <C>
1996 141,923 175,565
1995 121,266 166,077
1994 132,776 179,086
</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 $59,005, $103,400, and $103,397, were made to the General
Partners during 1996, 1995, and 1994, 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-20
Schedule VIII -- Valuation and Qualifying Accounts and
Reserves for Allowances for Doubtful Accounts F-21
Schedule X -- Consolidated Supplementary Income Statement
Information F-22
Schedule XI -- Real Estate and Accumulated Depreciation F-23
</TABLE>
8
<PAGE> 11
2. Exhibits:
Exhibits listed below which have been filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the
Securities Exchange Act of 1934, and which were filed as noted below, are
hereby incorporated by reference and made a part of this report with the
same effect as if filed herewith.
2. Purchase and Sale Agreement (the "Sale Agreement") dated February 3,
1997 (filed as an exhibit to the company's Form 8-K filed February
18, 1997, and as an appendix to the Partnership's Consent
Solicitation Statement dated March 12, 1997).
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.
3-C. Consent Solicitation Statement dated March 12, 1997 and filed pursuant
to Rule 14A, incorporated herein by reference.
(b) No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended December 31, 1996. A report on Form 8-K was filed on February 18,
1997 pertaining to Disposition of Partnership Assets.
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 21, 1997
---------------------------
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.
<TABLE>
<CAPTION>
Name Position Date
---- -------- ----
<S> <C> <C>
/s/ John M. DeBlois Chairman of the Board March 21, 1997
- ---------------------------------------------------
John M. DeBlois
/s/ John H. Stoddard President, Director, Chief March 21, 1997
- --------------------------------------------------- Financial Officer and Principal
John H. Stoddard Accounting Officer
</TABLE>
10
<PAGE> 13
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule (for SEC use only)
<PAGE> 14
SELF & MAPLES, P.A.
[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, 1996 and 1995 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, 1996. 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, 1996 and 1995 and the results of its
operations and its cash flows for each of the three years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Self & Maples, P.A.
Oneonta, Alabama
January 24, 1997, except for Note 14, as to which the date is
February 3, 1997
F-1
<PAGE> 15
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 766,621 $ 876,850
Patient accounts receivable, net of allowance
for doubtful accounts of $930,869 in 1996
and $837,727 in 1995 3,172,977 2,614,844
Estimated third-party payor settlements 956,362 373,738
Current portion of notes receivable - 1,045,102
Prepaid expenses and other assets 130,423 127,472
----------- -----------
Total current assets 5,026,383 5,038,006
Property and equipment, net of accumulated
depreciation and amortization 8,067,068 8,300,807
Deferred financing costs, less accumulated
amortization of $36,093 in 1996 and
$26,677 in 1995 10,985 20,401
----------- -----------
Total assets $13,104,436 $13,359,214
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current maturities of long-term debt 80,000 84,105
Accounts payable 809,741 834,703
Accrued payroll and payroll taxes 294,126 235,579
Accrued vacation 190,526 146,439
Accrued real estate taxes 196 193
Accrued insurance 4,888 10,977
Accrued management fees 55,285 53,158
Patient deposits and trust liabilities 66,502 81,190
Other accrued expenses 23,203 23,357
Estimated third-party payor settlements 513,939 417,145
----------- -----------
Total current liabilities 2,038,406 1,886,846
Long-term debt, net of current maturities 813,333 904,605
Due to affiliates 260,679 240,973
----------- -----------
Total liabilities 3,112,418 3,032,424
----------- -----------
Partners' capital (deficit)
Limited partners 10,290,023 10,601,361
General partners (298,005) (274,571)
----------- -----------
Total partners' capital 9,992,018 10,326,790
----------- -----------
Total liabilities and partners' capital $13,104,436 $13,359,214
=========== ===========
</TABLE>
See accompanying notes to finanicial statements
F-2
<PAGE> 16
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ----------- -------------
<S> <C> <C> <C>
Revenues
Net patient service revenue $15,194,226 13,503,777 $12,336,791
Other revenue 32,390 25,998 27,096
----------- ----------- -----------
Total revenue 15,226,616 13,529,775 12,363,887
----------- ----------- -----------
Operating expenses
Professional care of patients 8,499,224 6,977,036 5,922,576
Dietary 1,045,674 1,022,914 1,006,362
Household and plant 1,165,942 1,169,583 1,190,677
General and administrative 2,345,075 2,122,280 2,034,703
Employee health and welfare 736,284 733,580 674,289
Depreciation and amortization 495,705 506,128 661,019
----------- ----------- -----------
Total operating expenses 14,287,904 12,531,521 11,489,626
----------- ----------- -----------
Operating income 938,712 998,254 874,261
----------- ----------- -----------
Other income (expenses)
Interest income 102,804 112,432 109,051
Interest expense (100,948) (105,564) (92,302)
Provider fees (123,995) (123,995) (123,995)
----------- ----------- -----------
Total other income (expenses) (122,139) (117,127) (107,246)
----------- ----------- -----------
Income before recognition
of discontinued operations 816,573 881,127 767,015
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 (308,413) (207,707) 75,562
----------- ---------- -----------
Net income (loss) $ 508,160 $ (901,714) $ 842,577
=========== ===========
Net income (loss) attributable to
limited partners $ 472,589 $ (933,103) $ 783,597
Net income (loss) attributable
general partners 35,571 31,389 58,980
----------- ----------- -----------
$ 508,160 $ (901,714) $ 842,577
=========== =========== ===========
Net income (loss) per limited partnership unit
outstanding:
Continuing operations $ 33.17 $ 35.79 $ 31.16
Discontinued operations (12.53) (76.55) 3.07
----------- ----------- -----------
Net income (loss) per unit $ 20.64 $ (40.76) $ 34.23
=========== =========== ===========
</TABLE>
See accompanying notes to finanicial statements
F-3
<PAGE> 17
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Partners' capital (deficit)
December 31, 1993 22,895 $16,098,221 $(158,143) $15,940,078
Distributions to partners
($60 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
------ ---------- -------- -----------
Distributions to partners
($34.24 per limited
partnership unit outstanding) - (783,927) (59,005) (842,932)
Net income before recognition
of discontinued operations - 759,413 57,160 816,573
Loss from discontinued
rental operations (286,824) (21,589) (308,413)
------ ---------- -------- -----------
Partners' capital (deficit)
December 31, 1996 22,895 $10,290,023 $(298,005) $ 9,992,018
====== =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 18
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patient care $14,147,312 $11,607,874 $13,067,071
Interest received 102,804 112,432 58,395
Other operating receipts 32,390 25,998 27,096
Cash paid to suppliers and employees (14,041,741) (11,417,373) (10,608,610)
Interest paid (100,948) (105,564) (92,302)
Provider fees (123,995) (123,995) (123,995)
----------- ----------- -----------
Net cash provided (used) by
operating activities 15,822 99,372 2,327,655
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (252,550) (501,500) (79,293)
Proceeds from the sale of property - 4,000,000 -
Collections on notes receivable 1,045,102 72,600 67,101
----------- ----------- -----------
Net cash provided (used) by
investing activities 792,552 3,571,100 (12,192)
----------- ----------- -----------
Cash flows from financing activities:
Net related party transactions 19,706 38,127 15,887
Principal payments on debt obligations (95,377) (82,006) (92,564)
Distributions to partners (842,932) (4,077,056) (1,477,095)
----------- ----------- -----------
Net cash provided (used) by
financing activities (918,603) (4,120,935) (1,553,772)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents (110,229) (450,463) 761,691
Cash and cash equivalents, beginning
of year 876,850 1,327,313 565,622
----------- ----------- -----------
Cash and cash equivalents, end of year $ 766,621 $ 876,850 $ 1,327,313
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 19
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Reconciliation of net income (loss) to net cash provided by operating
activities:
Net income (loss) $ 508,160 $ (901,714) $ 842,577
--------- ---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 495,705 701,554 954,158
Provision for losses on accounts
receivable 133,858 57,397 34,674
Loss on disposal of property - 1,575,134 -
(Increase) decrease in:
Patient accounts receivable, net (691,991) (1,736,914) (300,000)
Estimated third-party payor
settlements (582,624) (373,738) 297,604
Prepaid expenses and other assets (2,951) 56,071 (21,208)
Increase (decrease) in:
Accounts payable (24,962) 406,715 207,365
Accrued expenses 98,521 171,572 6,803
Estimated third-party payor
settlements 96,794 157,352 259,793
Other liabilities (14,688) (14,057) 45,889
--------- ---------- ----------
Total adjustments (492,338) 1,001,086 1,485,078
--------- ---------- ----------
Net cash provided (used) by
operating activities $ 15,822 $ 99,372 $2,327,655
========= ========== ==========
Supplemental schedule of noncash investing and financing activities:
Note receivable taken for property sold $ - $1,000,000 $ -
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 20
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> 21
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, 1996 consolidate the accounts of the Partnership
and its wholly owned subsidiary, Lakecrest Nursing
Home, Inc. since May 1, 1995 (see Note 10). 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 1996, 1995 and 1994. 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 3).
F-8
<PAGE> 22
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
($11,576,458 in 1996, $7,184,277 in 1995 and
$5,391,261 in 1994) and provision for uncollectible
accounts, bad debts ($133,858 in 1996, $57,397 in
1995, and $34,674 in 1994) 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 $242,789 at December 31,
1996 and $291,859 at December 31, 1995. A portion of
commingled funds discussed in Note 8., may be at risk,
but the amount in excess of FDIC limits related to the
Partnership is not determinable.
F-9
<PAGE> 23
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANICAL STATEMENTS
(l) Uses of Estimates
Management uses estimates and assumptions in preparing
financial statements in accordance with generally
accepted accounting principles. 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.
Actual results could vary from the estimates that were
assumed in preparing the financial statements.
Note 2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash $ 15,386 $ 876,850
Short-term securities 751,235 -
--------- ----------
$ 766,621 $ 876,850
========= ==========
</TABLE>
Note 3. PROPERTY 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 5). 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,
F-10
<PAGE> 24
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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 5). Effective September 1, 1995, the
Partnership sold the facility (see Note 10).
A summary of property, equipment and accumulated depreciation at
December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 525,000 $ 525,000
Buildings and improvements 11,866,426 11,590,498
Furniture and equipment 1,309,265 1,322,600
Property under capital leases - 16,870
----------- -----------
Total 13,700,691 13,454,968
Accumulated depreciation
and amortization (5,633,623) (5,154,161)
----------- -----------
Net property and
equipment $ 8,067,068 $ 8,300,807
=========== ===========
</TABLE>
Note 4. 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.
The outstanding receivable related to this note totaled $45,102 at
December 31, 1995. The balance was paid in full during the year ended
December 31, 1996.
F-11
<PAGE> 25
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANICIAL STATEMENTS
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 5 ). 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 the Partnership purchased the stock of the lessee
corporation (Note 10), 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 10). This note, made in conjunction with the
sale of the facility, bore interest at 9%, and called for payments of
interest only through August 31, 1996, at which time the note was paid
in full.
Note 5. PROPERTY LEASES
Merrillville was accounted for as a capital lease until December 17,
1992 as explained in Note 3. 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 3).
Rental income for Merrillville's lease was $220,000 in 1995, and
$660,000 in 1994. 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 4.,
were made to the lessee. The Partnership has other contractual
agreements, as explained in Note 9, 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
F-12
<PAGE> 26
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
discontinue rental operations. In September 1995 the Partnership sold
the Merrillville facility and terminated the lease (Note 10).
Note 6. LONG-TERM DEBT
Long-term debt at December 31, 1996, and 1995 is summarized as follows:
1996 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Prime plus 1% (9.25% at
December 31, 1996 and 9.5% at
December 31, 1995) mortgage
note payable in monthly principal installments of $6,667 plus
interest, with a final balloon principal payment
due March 1, 1998 $ 893,333 $ 980,000
Capitalized lease obligations
payable monthly with interest
rates from 8% to 13.46% - 8,710
----------- ---------
893,333 988,710
Less amounts due in one year
or less 80,000 84,105
----------- ---------
$ 813,333 $ 904,605
=========== =========
</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 9) 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 loan document contains
restrictive covenants associated with ratio and earnings requirements.
Management is not aware of any conditions that exist that would cause
them to be in noncompliance with these requirements.
The aggregate annual maturities of mortgage notes payable and capital
lease obligations are as follows:
<TABLE>
<S> <C>
1997 $ 80,000
1998 813,333
----------
$ 893,333
==========
</TABLE>
F-13
<PAGE> 27
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 7. 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 following is a reconciliation
of reported net income and Federal taxable income:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) as reported $ 508,160 $ (901,714) $ 842,577
Adjustments:
Gain on sale of Merrillville - 2,343,824 -
(Income) loss from consolidated
C-corporation 307,496 (142,073) -
Depreciation differences (64,124) 36,485 181,284
Insurance deductible - (48,000) -
Travel and entertainment 8,655 8,797 11,488
Bad debt reserve 72,430 (582,317) 231,790
Vacation accrual 31,307 327 (1,880)
---------- ---------- ----------
Federal taxable income $ 863,924 $ 715,329 $1,265,259
========== ========== ==========
Federal taxable income per
limited partnership unit
outstanding $35.09 $29.06 $51.40
======= ======= =======
</TABLE>
Note 8. 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 $141,923 in 1996, $121,266 in 1995 and $132,776
in 1994. QualiCorp charged the Partnership administrative expenses
totaling $175,565 in 1996, $166,077 in 1995, and $179,086 in 1994.
Details of the amounts due to affiliates at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due to affiliates of the general
partner $ - $ 51,783
Due to QualiCorp 260,679 189,190
--------- ----------
$ 260,679 $ 240,973
========= ==========
</TABLE>
During the year ended December 31, 1995, 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
F-14
<PAGE> 28
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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 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.
See Footnote 14 for sale of affiliated assets.
Note 9. 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 $480,119 in 1996, $461,653 in 1995, and
$443,897 in 1994.
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 $183,297 in 1996, $176,247 in 1995 and $172,603 in
1994.
The management agreements were amended on January 1, 1995. The amendment
calls for 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
F-15
<PAGE> 29
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
agreement discounted to the date of termination at an annual interest
rate of ten percent (10%). In addition, the parties agreed to terminate
the Manager's right of first refusal.
Commencing January 1, 1996, the Management Agreement was extended for a
period of up to a maximum of eighteen months by one month for every
month after January 1, 1996 in which the parties are engaged in the
process of attempting to sell the Facilities. In the event of a sale of
the Facilities, the termination on sale fee described above would be
discounted to the date of termination at an annual rate of ten percent
(10%) and then further discounted by a factor of thirty-three and
one-third percent (33 1/3%).
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 4 along with the lessor of the
Merrillville, Indiana property who, prior to being purchased by the
Partnership (Note 10), owed the Partnership the second note receivable
described in Note 4 and the unpaid lease payments described in Note 5,
are or were commonly owned with the above entities. Additionally, the
seller of the equipment purchased at Merrillville as described in Note
10, is commonly owned with the above entities.
Note 10. 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 9, 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 4). The
results of operations are consolidated for the period from May 1, 1995
to December 31, 1995 and for the year ended December 31, 1996, 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:
F-16
<PAGE> 30
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues $14,897,120 $16,493,451
=========== ===========
Net income (loss) $(1,099,390) $ 441,904
=========== ===========
Net income (loss) per limited
partnership unit outstanding $ (48.79) $ 17.95
======= =======
</TABLE>
Loss on disposal of rental operations at December 31, 1995 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 11. 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.
Note 12. CONCENTRATIONS IN REVENUE SOURCES
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, 1996, 1995,
and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Private pay patients 15.35% 17.87% 15.71%
Medicaid 43.50% 50.57% 50.96%
Medicare 41.15% 31.56% 33.33%
------ ------ ------
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.
Note 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Statement No. 107, Disclosures about Fair Value of
Financial Instruments ("FAS 107") requires disclosure of fair value
information about financial instruments, whether or not
F-17
<PAGE> 31
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
recognized on the face of the balance sheet, for which it is practicable
to estimate the value. The assumptions used in the estimation of the
fair value of the Company's financial instruments are detailed below.
Where quoted prices are not available, fair values are based on
estimates using discounted cash flows and other valuation techniques.
The use of discounted cash flows can be significantly affected by the
assumptions used, including the discount rate and estimates of future
cash flows. The following disclosures should not be considered a
surrogate of the liquidation value of the Company, but rather represents
a good-faith estimate of the increase or decrease in value of financial
instruments held by the Company since purchase, origination or issuance.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Cash and cash equivalents: The carrying amount approximates fair
value because of the short period to maturity of the instruments.
Long-term Debt: For variable rate notes, fair values are based on
carrying values.
The other financial instruments of the Company are short-term assets
and liabilities whose carrying amounts reported in the balance sheet
approximate fair value. These items include accounts receivable and
accounts payable.
Note 14. SUBSEQUENT EVENT
On February 3, 1997, RWB Medical Income Properties 1 Limited Partnership
entered into a purchase agreement with Omega HealthCare Investors, Inc.
to sell all of the real and personal property of the nursing home
facilities.
The purchase price is allocated among the facilities as follows:
<TABLE>
<S> <C>
Southpoint Manor (230 beds) $12,550,000
Merry Wood Lodge (124 beds) 6,050,000
-----------
Proceeds from sale $18,600,000
===========
</TABLE>
Proceeds from the sale will be reduced by expenses incurred as a result
of the sale, cash offsets for liabilities assumed by the buyer and
existing indebtedness. These payments should approximate $5,432,000.
The closing could take place as early as March 31, 1997 and can be
extended by the Partnership until April 30, 1997. If conditions
precedent to either party's obligation to close are not satisfied
F-18
<PAGE> 32
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
or waived, the closing can be extended to a date no later than July 31,
1997. Approximately $600,000 of these proceeds will be set aside in a
joint signature account for the purpose of securing all of the seller's
obligations under the purchase agreement. These funds will be available
to the Partnership in the event that these obligations do not exceed the
funds held in escrow.
In addition, a separate amount of proceeds of approximately $2,370,000
will also be held in reserve by the Partnership pending final settlement
of third-party cost reports and other contingencies.
This agreement can be terminated by mutual consent of the parties and
other conditions precedent.
In conjunction with the above sale, Omega HealthCare Investors, Inc. has
agreed to a similar purchase of assets from RWB Medical Properties
Limited Partnership IV, of which an officer of QualiCorp, Inc. owns
either directly or indirectly a 21.53% interest. This sale relates to a
131 bed nursing home in Patterson, Louisiana and the purchase price for
the assets is $5,350,000.
F-19
<PAGE> 33
[SELF & MAPLES, P.A. LETTERHEAD]
INDEPENDENT AUDITORS' 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 1996 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.
Oneonta, Alabama
January 24, 1997, except for Note 14, as to which the date is
February 3, 1997
F-20
<PAGE> 34
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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- ------------
<S> <C> <C> <C>
Balance at beginning of year $ 837,727 $ 1,233,671 $ 1,001,881
Amounts charged to revenue (40,716) 160,323 $ (75,331)
Bad debt expense and recording
of losses realized related to
Merrillville's operatint lease - (613,665) $ 272,447
Write-offs 133,858 57,398 34,674
------------ ------------- ------------
Balance at end of year $ 930,869 $ 837,727 $ 1,233,671
============ ============= ============
</TABLE>
F-21
<PAGE> 35
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
SCHEDULE X
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Professional care of patients
Salaries and wages $4,000,223 $3,982,347 $3,765,545
Ancillary service expense 3,343,906 1,927,683 1,258,187
Supplies & pharmaceuticals 700,352 625,828 545,257
General and administrative
Salaries and wages 446,017 359,481 343,421
Accounting and auditing 121,760 117,375 86,617
Insurance 327,224 316,009 351,362
Property tax 134,365 133,409 108,829
Management fees 663,416 637,900 616,500
Property management fees 141,924 121,265 132,776
Cost reimbursement 175,565 166,077 179,086
Dietary
Food cost 444,992 433,544 448,072
Household and plant
Repairs and maintenance 63,967 107,613 139,529
Utilities 281,561 267,383 267,843
Depreciation and amortization $ 495,705 $ 701,554 $954,158
========== ========= ========
</TABLE>
F-22
<PAGE> 36
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED GROSS AMOUNT AT WHICH CARRIED
TO PARTNERSHIP (A) SUBSEQUENT TO AS OF DECEMBER 31, 1996(B)
ACQUISITION
BUILDING AND CARRYING BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS TOTAL
- ----------------------- ------------ ------------------------- ---------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SOUTHPOINT MANOR $509,200 $500,000 $ 7,354,602 $1,665,802 $ - $500,000 $ 9,O20,404 $ 9,520,404
MERRYWOOD 384,133 25,000 3,743,335 411,952 - 25,000 4,155,287 4,180,287
------------ ------------------------- ---------------------- -------------------------------------
$893,333 $525,000 $11,097,937 $2,077,754 $ - $525,000 $13,175,691 $13,700,691
============ ========================= ====================== =====================================
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
ACCUMULATED DATE OF DATE OPERATION IS
DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
------------ --------------------------------------------
<S> <C> <C> <C> <C>
SOUTHPOINT MANOR $ 4,157,019 1984 09/03/86 30 YEARS
MERRYWOOD 1,506,604 1965/1975 10/01/86 30 YEARS
------------
$ 5,663,623
============
</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, 1996 for Federal
Income tax purposes was approximately $13,700,691
(C) Reconciliation of real estate owned at December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of period $13,454,968 $18,884,656 $18,805,363
Additions 245,723 501,500 79,293
Reductions - (142,335) -
Sale of Merrillville facility - (5,788,853) -
----------- ----------- -----------
Balance at end of period $13,700,691 $13,454,968 $18,884,656
=========== =========== ===========
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 5,074,404 $ 5,386,058 $ 4,441,316
Depreciation expense 559,219 701,554 944,742
Reductions - (142,335) -
Sale of Merrillville facility - (870,873) -
----------- ----------- -----------
Balance at end of period $ 5,633,623 $ 5,074,404 $ 5,386,058
=========== =========== ===========
</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, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 766,621
<SECURITIES> 0
<RECEIVABLES> 4,103,846
<ALLOWANCES> 930,869
<INVENTORY> 0
<CURRENT-ASSETS> 5,026,383
<PP&E> 13,700,691
<DEPRECIATION> 5,633,623
<TOTAL-ASSETS> 13,104,436
<CURRENT-LIABILITIES> 2,038,406
<BONDS> 813,333
0
0
<COMMON> 0
<OTHER-SE> 9,992,018<F1>
<TOTAL-LIABILITY-AND-EQUITY> 13,104,436
<SALES> 0
<TOTAL-REVENUES> 15,226,616
<CGS> 0
<TOTAL-COSTS> 14,287,904
<OTHER-EXPENSES> 21,191
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,948
<INCOME-PRETAX> 816,573
<INCOME-TAX> 0
<INCOME-CONTINUING> 816,573
<DISCONTINUED> (308,413)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 508,160
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>5.02(31) REPRESENTS TOTAL PARTNERSHIP CAPITAL INCLUDING NET INCOME NET OF
DISTRIBUTIONS PAID.
</FN>
</TABLE>
