<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities and Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
December 31, 1996 33-6122-01
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)
Delaware 59-2724921
(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:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
<S> <C>
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 non-affiliates of the
Registrant is not applicable.
The number of limited partnership units outstanding on February 27, 1997 was
18,639.
The Prospectus of the Registrant dated October 22, 1986, 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
MEDICAL INCOME PROPERTIES 2A 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 3
Item 4: Submission of Matters to a Vote of Security Holders 3
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 8
Item 9: Disagreements on Accounting and Financial Disclosure 8
PART III
Item 10: Directors and Executive Officers of the Registrant 8
Item 11: Executive Compensation 9
Item 12: Security Ownership of Certain Beneficial Owners and Management 9
Item 13: Certain Relationships and Related Transactions 9
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 9
Signatures 11
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
General
Medical Income Properties 2A Limited Partnership (the Partnership), is a
Delaware limited partnership which was organized on May 14, 1986. The
Partnership is one of a series of three limited partnerships as represented by
the registration statement filed with the Securities and Exchange Commission on
October 22, 1986 (the Effective Date), providing for the sale of $10,000,000 of
limited partnership units (the Units), with an option to increase the offering
by an additional $10,000,000. The offering closed on June 2, 1987, upon the sale
of 18,639 units for an aggregate purchase price of $18,639,000.
The purpose of the Partnership is to engage in the business of acquiring and
holding for investment income-producing health care related properties,
primarily nursing homes, and operating such properties as skilled and
intermediate care nursing homes. As of December 31, 1996, the Partnership owned
a 100% interest of four nursing homes, a 54.55% interest in a nursing home in
Decatur, Alabama and a 50% interest in two joint venture nursing homes in the
Houston, Texas area. The Partnership employed approximately 502 employees as of
February 12, 1997.
Business Strategy
The Partnership intends to hold its real property investments until such time as
a sale or other disposition appears to be advantageous. Such factors 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.
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, Qualicorp Management, Inc., 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 $12,377,275, which will be reduced by accrued expenses of approximately
$325,207 for vacation pay, sick pay, taxes and trust fund obligations as
provided in the Sale Agreement, by approximately $1,741,052 of closing costs,
brokerage fees, third party settlements and other obligations, and by
approximately $1,898,867 for the payment of debt, resulting in estimated net
proceeds from the sale of $8,412,149. These estimated net proceeds will be
augmented by estimated current assets in excess of current liabilities of
approximately $1,629,269 which will increase the total amount estimated to be
available for distribution to approximately $10,041,418, 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 $725 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 $7,909,761);
2. Second Installment. A second distribution of approximately $153 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 $1,668,632); and
3. Final Installments. A final distribution of up to $43 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 $463,025).
1
<PAGE> 4
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
Partnership's nursing homes are considered to be in the skilled segment of the
industry, although several of its homes offer subacute 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. The Partnership owns nursing facilities in the States of Illinois, Texas,
and Alabama. Each state reimburses nursing facilities on a prospective basis,
although Alabama is the only state which bases reimbursement on the nursing
facilities' actual cost. Texas and Illinois use average cost derived from all
filed cost reports. Texas reimburses nursing facilities on a patient specific
need called Texas Index of Level of Effort (TILE). Illinois pays nursing
facilities based upon different cost parameters, including paying additional
incentives based on facility services provided. 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 a corresponding "ripple effect"
for wages of employees paid above the new minimum wage by increasing wages
accordingly. To date, the State of Alabama has increased its reimbursement rates
to reimburse actual expenses due to the 1996 minimum wage increase to $4.75. The
States of Illinois and Texas have recently increased their reimbursement rates,
but these increases were not related to, and do not reimburse providers for, the
1996 minimum wage increase. None of these states are committed to reimbursing
nursing home expenses due to the 1997 increases in the minimum wage to $5.15 per
hour, and there is considerable doubt as to whether such increases will be
forthcoming.
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 states 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 first and second quarter of each fiscal year. This
seasonality is due primarily to the state Medicaid programs in which the
Partnership operates, rate increases and census cycles.
2
<PAGE> 5
SERVICES PROVIDED
Routine Services
All of the nursing facilities operated by the Partnership are licensed as
skilled care facilities by the appropriate 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. Skilled nursing care is
rendered 24 hours per day by registered or licensed nurses and 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 therapy programs. The Partnership continues to expand these services
as warranted by the needs of its residents and the requirements of third-party
payor programs.
ITEM 2. PROPERTIES
As of December 31, 1996, the following properties were owned by the Partnership:
<TABLE>
<CAPTION>
Date of No. of Average Daily Census
Property Acquisition Beds Description 1996 1995 1994 1993 1992
-------- ----------- ---- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Muscle Shoals, AL. 9/1/87 90 Nursing home 83 84 84 82 82
Shoals, AL. 9/1/87 103 Nursing home 98 99 100 100 100
Oak Crest, AL. 9/1/87 109 Nursing home 94 94 95 98 100
University Manor , IL. 3/1/88 120 Nursing home 108 107 106 109 116
Medical Park 7/1/88 183 Nursing home 174 170 175 178 179
Decatur, AL. (54.55% Interest)
</TABLE>
In addition, the Partnership has invested in a joint venture consisting of two
nursing homes with Medical Income Properties 2B Limited Partnership:
<TABLE>
<CAPTION>
Date of Owner-
Acqui- No. of ship Avg. Daily Census
Property sition Beds Description % 1996 1995 1994 1993 1992
-------- ------ ---- ----------- - ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Renaissance Place-Katy, TX. 5/1/88 130 Nursing home 50% 117 121 112 118 116
Renaissance Place-Humble, TX. 5/1/88 120 Nursing home 50% 115 116 115 113 113
</TABLE>
A description of the Partnership's purchase of its properties is disclosed in
Notes 1(f), 2, 4, 5, 6 and 14 of the 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 1,571 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 $20,824 19,050 17,906 16,607 16,037
Operating Income $ 2,233 1,941 1,994 2,624 2,373
Net Income $ 1,699 1,184 1,206 1,651 1,300
Per Share Data:
Net Income per
Limited Partner Unit $ 84.76 59.09 60.20 82.36 64.87
Financial Condition:
Total Assets $25,543 25,186 24,703 24,479 23,612
Bonds, Notes and
Capitalized Lease
Obligations $ 3,902 4,241 4,584 4,951 4,977
Partners' Capital $16,754 16,260 16,233 16,218 15,319
Distributions per Limited
Partner Unit:
First Quarter $ 15.00 15.00 12.50 8.75 5.00
Second Quarter $ 15.00 15.00 15.00 8.75 6.25
Third Quarter $ 15.00 15.00 15.00 10.00 6.25
Fourth Quarter $ 15.00 15.00 15.00 10.00 7.50
</TABLE>
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 $5,080 $5,051 $5,082 $5,611
Income from Operations 580 532 522 599
Net Income 435 325 457 482
</TABLE>
<TABLE>
<CAPTION>
1995
---------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue $4,881 $4,841 $4,967 $4,361
Income from Operations 747 606 527 61
Net Income (Loss) 591 495 402 (304)
</TABLE>
<TABLE>
<CAPTION>
1994
---------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue $4,302 $4,412 $4,488 $4,704
Income from Operations 641 496 476 381
Net Income 425 271 380 130
</TABLE>
4
<PAGE> 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Reserves
Cash and cash equivalents balances and marketable securities totaled $3,984,054
at December 31, 1996, an increase of $932,898 from December 31, 1995. Accounts
receivable balances decreased during the same time frame $444,215 due to
improved collection efforts directed toward Medicare, Medicaid and private
payors. In addition, more timely Medicaid reimbursement from the State of
Illinois decreased receivables $131,000 between years. Net cash from operations
increased to $2,598,898 in 1996 compared to $1,914,160 in 1995. Cash paid to
suppliers and employees, while increasing $1,865,395, reflected higher salaries
and wages paid and increased ancillary services provided by contract services.
The Partnership spent $360,089 on capital expenditures during 1996 and expects
to spend approximately the same amount in 1997. During the year, the Partnership
let lapse the Certificate of Need to construct a fourteen (14) bed addition to
its Shoals nursing home which it had intended to finance from existing cash
balances.
In 1996, the Partnership paid regular distributions to its limited partners of
$60 per unit. This distribution equaled a 6% return on the initial investment of
$1,000 per unit. 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 1996 Compared to 1995
Net income for the year ended December 31, 1996 was $1,698,843 compared to
$1,184,339 for the year ended December 31, 1995. Total revenue increased to
$20,824,455 during the year, an increase of $1,774,778 over 1995. This increase
was the result of improved routine service rates and the facilities' continued
efforts to provide increased ancillary services, particularly therapy services,
to its residents.
The operating costs of the Partnership increased to $18,591,372 during the year.
Operating expenses for 1995 totaled $17,108,449. Professional care of patient
costs by year are:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Salaries and Wages $ 5,833,050 $ 5,515,416
Supplies and Pharmaceuticals 837,089 740,854
Ancillary Service Expense 2,899,359 2,160,552
Social Service and Activities 336,707 320,187
Medical Records 80,341 65,715
Temporary Labor -- 46,869
Other Expenses 361,291 356,192
---------- ---------
10,347,837 9,205,785
========== =========
</TABLE>
Dietary expenses increased during the year approximately 3% while Household and
Plant Expenditures increased $8,889 over 1995 levels.
5
<PAGE> 8
General and Administrative expenses by year are:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Salaries and Wages $ 510,373 $ 502,629
Supplies 53,357 54,296
Insurance 585,444 595,983
Management Fees 988,841 950,808
Property Management Fees 235,223 --
Cost Reimbursement 144,527 136,679
Property Tax 68,773 69,709
Accounting and Auditing 225,425 185,395
Telephone 51,654 52,921
Travel 42,918 43,577
Other Expenses 262,598 298,764
---------- ----------
$3,169,133 $2,890,731
========== ==========
</TABLE>
Insurance costs continued to decline due to improved controls on programs,
particularly workers compensation programs, in the Alabama facilities. The
Partnership paid to Qualicorp a property management fee of $235,223 for services
provided to the Partnership in 1996. Accounting and Audit expense increased
$40,030 in 1996 over 1995 due to cost report preparation expenses and increased
audit costs. Employee health and welfare costs increased in 1996 over 1995 due
to higher employment taxes offset by lower than expected health insurance costs.
Other income (expenses) for 1996 over 1995 reflected higher interest income
earned on investment funds, lower interest rates charged on debt obligations and
substantially higher earnings from two Texas properties which increased the
Partnership's share of joint venture income by $177,356.
Fiscal Year 1995 Compared to 1994
Net income for the year was $1,184,339, compared to $1,206,438 in 1994. Revenue
from patient services increased to $19,017,058 during the year, an increase of
6% over the prior year. The cost of nursing care, including ancillary services
rose $965,000 between years due to higher labor costs, ancillary services and
supply costs.
Temporary labor costs declined $134,000 from the prior year level.
Professional care of patients costs by year are:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Salaries and Wages $5,515,416 $5,114,186
Supplies and Pharmaceuticals 740,854 611,700
Ancillary Services Expense 2,160,552 1,661,797
Social Service and Activities 320,187 310,435
Medical Records 65,715 62,918
Temporary Labor 46,869 180,950
Other Expenses 356,192 298,801
---------- ----------
$9,205,785 $8,240,787
========== ==========
</TABLE>
Dietary expenses rose $52,334 due to increased food and supply costs while
Household and Plant costs increased $97,124, primarily due to higher labor,
supplies and utilities expenses.
6
<PAGE> 9
General and Administrative expenses by year are:
<TABLE>
<S> <C> <C>
Salaries and Wages $ 502,629 $ 453,807
Supplies 54,296 50,556
Insurance 595,953 665,557
Management Fees 950,808 914,238
Cost Reimbursement 136,679 147,110
Property Tax 69,709 55,586
Accounting and Auditing 185,395 184,757
Telephone 52,921 45,568
Travel 43,577 52,404
Other Expenses 298,764 229,196
---------- ----------
$2,890,731 $2,798,779
========== ==========
</TABLE>
Insurance costs continue to decline due to improved controls on the workers
compensation programs in the State of Alabama. Total other income/expenses
totaled $756,889 for the year, a $31,065 improvement over the prior year. The
earnings of the two Texas properties were substantially higher than the previous
year, therefore increasing the Partnership share of joint venture income by
$152,754. The minority interest arising from the operation of the Medical Park
facility reflects improved earnings at that facility due to ancillary services
utilization.
Fiscal Year 1994 Compared to 1993
Net income for the year ended December 31, 1994 was $1,206,438, compared to
$1,650,574 for 1993. This decline in earnings was due to sharply higher
operating expenses for the care of patients which could not be reflected in
increased rates in the current year. These expenditures should be reflected in
higher patient care rates in future periods.
Professional care of patient costs by year are:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Salaries and Wages $5,114,186 $4,461,047
Supplies and Pharmaceuticals 611,700 478,020
Ancillary Service Expense 1,661,797 897,741
Social Service and Activities 310,435 285,804
Medical Records 62,918 54,084
Temporary Labor 180,950 93,344
Other Expenses 298,801 242,756
---------- ----------
$8,240,787 $6,512,796
========== ==========
</TABLE>
Ancillary services include physical, occupational, and speech therapy programs
that allow patients to have an improved quality of life and, in some cases, to
be discharged to their homes. Expenses for salaries and wages include the cost
of several new nursing positions which were added in response to the many
regulatory changes being implemented by the various state and federal agencies.
In addition, vacation pay was allocated to each department in 1994 instead of
being included in Employee Health and Welfare accounts, as it was in previous
years.
A recap of General and Administrative expenses include:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Salaries and Wages $ 453,807 $ 409,137
Supplies 50,556 41,104
Insurance 665,557 751,997
Management Fees 914,238 864,674
Cost Reimbursement 147,110 137,579
Property Tax 55,586 79,569
Audit and Accounting 184,757 153,545
Telephone 45,568 42,377
Travel 52,404 36,944
Other Expenses 229,196 177,747
---------- ----------
$2,798,779 $2,694,653
========== ==========
</TABLE>
7
<PAGE> 10
The decrease in insurance costs was due to improved controls on the workers
compensation insurance programs, particularly in the State of Alabama.
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 years
1996 and 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. QualiCorp Management,
Inc. (QMI), a Delaware corporation, is the Managing General Partner of the
Partnership. The directors and executive officers of QMI as of December 31, 1996
are listed below. Directors serve for one year or until the next annual meeting
of stockholders of QMI or until their successors are elected and qualified. QMI
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" on pages 38 through 42 of the
Prospectus, which pages are specifically incorporated by reference herein.
The directors and executive officers of QMI 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>
8
<PAGE> 11
Mr. DeBlois and Mr. Stoddard are Directors of QMI 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 during
the three years ended December 31, 1996. The Partnership paid to Qualicorp,
Inc., the parent of QMI, the Managing General Partner, $144,527 as reimbursement
for administrative expenses (primarily salaries) incurred during the year.
Qualicorp, Inc. also charged the Partnership $235,223 in 1996 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 or directors of QMI owned any Units in the Partnership at
December 31, 1996. Qualicorp, Inc., parent of QMI, the Partnership's Managing
General Partner, held 42 units in the Partnership at December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the five years ended December 31, 1996, QualiCorp, Inc., the parent of QMI,
charged the Partnership for administrative services $144,527, $136,679,
$147,110, $137,579, and $114,791. In addition, Qualicorp, Inc.
also charged the Partnership $235,223 in 1996 for property management fees.
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 32 through 36 of the Prospectus.
Cash distributions of $84,175, $84,175, $80,671, $52,606, and $35,074, were made
to the General Partners during 1996, 1995, 1994, 1993, and 1992, 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. Financial statements and supplementary information appear on a
separate section of this Form 10-K commencing on pages referenced
below:
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
<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 Flows F-5
Notes to Financial Statements F-7
</TABLE>
9
<PAGE> 12
<TABLE>
<S> <C>
Information Accompanying the Basic Financial Statements
Independent Auditor's Report on Additional Information 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>
All schedules other than those indicated have been omitted as the required
information is inapplicable or the information is presented in the financial
statements or related notes.
THE TEXAS JOINT VENTURE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report F-24
Financial Statements
Balance Sheets F-25
Statements of Operations F-26
Statements of Partners' Capital F-27
Statements of Cash Flows F-28
Notes to Financial Statements F-30
Information Accompanying the Basic Financial Statements
Independent Auditor's Report on Additional Information F-39
Schedule VIII - Valuation and Qualifying
Accounts and Reserves for
Allowance for Doubtful Accounts F-40
Schedule X - Consolidated Supplementary
Income Statement Information F-41
Schedule XI - Real Estate and Accumulated Depreciation F-42
</TABLE>
All schedules other than those indicated have been omitted as the required
information is inapplicable or the information is presented in the financial
statements or related notes.
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 Partnership dated October 22, 1986, as
amended October 23, 1986, October 29, 1986 and supplemented on
February 26, 1987 and filed pursuant to Rule 424(b) is hereby
incorporated herein by reference.
3-B. Amended and restated agreement of Limited Partnership set forth
as Exhibit A to the prospectus, incorporated herein by reference.
3-C. Consent Solicitation Statement dated March 12, 1997 was filed
pursuant to Rule 14A and incorporated herein by reference.
(b) No report on Form 8-K was 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 the Disposition of Partnership Assets.
10
<PAGE> 13
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.
MEDICAL INCOME PROPERTIES 2A
LIMITED PARTNERSHIP
QUALICORP MANAGEMENT, INC.
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.
Name Position Date
/s/ John M. DeBlois Chairman of the Board March 21, 1997
- ---------------------
John M. DeBlois
/s/ John H. Stoddard President, Director, March 21, 1997
- ---------------------- Chief Financial Officer
John H. Stoddard and Principal Accounting
Officer
11
<PAGE> 14
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule (for SEC use only)
<PAGE> 15
[SELF & MAPLES, P.A. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Medical Income Properties 2A Limited Partnership
We have audited the balance sheets of Medical Income Properties 2A Limited
Partnership as of December 31, 1996 and 1995 and the related statements of
operations, partners' capital and cash flows for each of the 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 the 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
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 Medical Income Properties 2A
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the 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> 16
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,644,674 $ 889,401
Marketable securities 2,339,380 2,161,755
Patient accounts receivable, net of allowance
for doubtful accounts of $225,011
in 1996 and $190,934 in 1995 2,179,723 2,623,938
Interest receivable 13,914 10,203
Estimated third-party payor settlements 739,842 485,609
Prepaid expenses and other assets 127,032 110,667
----------- -----------
Total current assets 7,044,565 6,281,573
Investment in joint ventures 4,986,273 4,718,713
Property and equipment, net of
accumulated depreciation 13,016,044 13,394,031
Deferred financing costs, net of
accumulated amortization of
$54,075 in 1996 and $39,294 in 1995 22,545 37,326
Due from affiliates 473,417 754,471
----------- -----------
Total assets $25,542,844 $25,186,114
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities
Current maturities of long-term debt $ 343,697 $ 337,075
Accounts payable 906,261 870,895
Accrued payroll and payroll taxes 309,380 259,497
Accrued vacation 247,096 207,362
Accrued insurance 43,126 65,028
Accrued management fees 82,403 79,234
Patient deposits and trust liabilities 128,204 97,569
Other accrued expenses 91,947 92,522
Estimated third-party payor settlements 516,976 453,166
Due to affiliates 460,564 243,814
----------- -----------
Total current liabilities 3,129,654 2,706,162
Long-term debt, net of current maturities 3,558,529 3,903,921
----------- -----------
Total liabilities 6,688,183 6,610,083
Venture partners' minority interest 2,100,875 2,315,986
----------- -----------
Partners' capital
Limited partners 16,709,571 16,250,393
General partners 44,215 9,652
----------- -----------
Total partners' capital 16,753,786 16,260,045
----------- -----------
Total liabilities and partners' capital $25,542,844 $25,186,114
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 17
MEDICAL INCOME PROPERTIES 2A 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 $ 20,783,193 $ 19,017,059 $ 17,872,338
Other revenue 41,262 32,618 34,056
------------ ------------ ------------
Total revenue 20,824,455 19,049,677 17,906,394
------------ ------------ ------------
Operating expenses
Professional care of patients 10,347,837 9,205,785 8,240,787
Dietary 1,657,865 1,609,770 1,557,436
Household and plant 1,723,483 1,714,594 1,617,470
General and administrative 3,169,133 2,890,731 2,798,779
Employee health and welfare 940,197 919,299 925,354
Depreciation and amortization 752,857 768,270 772,176
------------ ------------ ------------
Total operating expenses 18,591,372 17,108,449 15,912,002
------------ ------------ ------------
Operating income 2,233,083 1,941,228 1,994,392
------------ ------------ ------------
Other income (expenses)
Interest income 206,257 157,839 152,591
Interest expense (376,001) (419,354) (380,587)
Provider fees (550,861) (550,681) (540,739)
Minority interest in
consolidated joint venture (371,193) (324,895) (246,667)
Partnership share of
unconsolidated joint
venture income 557,558 380,202 227,448
------------ ------------ ------------
Total other income
(expenses) (534,240) (756,889) (787,954)
------------ ------------ ------------
Net income $ 1,698,843 $ 1,184,339 $ 1,206,438
============ ============ ============
Net income attributable
to limited partners (93%) $ 1,579,924 $ 1,101,435 $ 1,121,987
Net income attributable
to general partners (7%) 118,919 82,904 84,451
------------ ------------ ------------
$ 1,698,843 $ 1,184,339 $ 1,206,438
============ ============ ============
Net income per weighted
average limited partnership
unit outstanding $ 84.76 $ 59.09 $ 60.20
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 18
MEDICAL INCOME PROPERTIES 2A 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 at
December 31, 1993 $ 18,639 $ 16,211,431 $ 6,720 $ 16,218,151
Distributions to
partners ($57.50 per
limited partnership
unit outstanding) -- (1,071,744) (80,671) (1,152,415)
Net income -- 1,121,987 84,451 1,206,438
Unrealized loss on
marketable securities
available for sale -- (36,071) (2,715) (38,786)
------------ ------------ ------------ ------------
Partners' capital at
December 31, 1994 18,639 16,225,603 7,785 16,233,388
Distributions to
partners ($60.00 per
limited partnership
unit outstanding) -- (1,118,339) (84,175) (1,202,514)
Net income -- 1,101,435 82,904 1,184,339
Unrealized gain on
marketable securities
available for sale -- 41,694 3,138 44,832
------------ ------------ ------------ ------------
Partners' capital at
December 31, 1995 18,639 16,250,393 9,652 16,260,045
Distributions to
partners ($60.00 per
limited partnership
unit outstanding) -- (1,118,339) (84,175) (1,202,514)
Net income -- 1,579,924 118,919 1,698,843
Unrealized loss on
marketable securities
available for sale -- (2,407) (181) (2,588)
------------ ------------ ------------ ------------
Partners' capital at
December 31, 1996 $ 18,639 $ 16,709,571 $ 44,215 $ 16,753,786
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 19
MEDICAL INCOME PROPERTIES 2A 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 $ 21,020,618 $ 18,528,805 $ 17,291,338
Interest and dividends received 166,085 159,582 125,965
Other operating receipts 41,262 32,618 34,056
Cash paid to suppliers and
employees (17,702,205) (15,836,810) (14,858,368)
Interest paid (376,001) (419,354) (380,587)
Provider fees (550,861) (550,681) (540,739)
------------ ------------ ------------
Net cash provided (used) by operations 2,598,898 1,914,160 1,671,665
------------ ------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (1,543,752) (755,533) (2,169,477)
Maturities of marketable securities 1,400,000 783,981 --
Capital expenditures (360,089) (391,040) (353,775)
Distributions from joint
ventures 290,000 290,000 189,999
------------ ------------ ------------
Net cash provided (used)
by investing activities (213,841) (72,592) (2,333,253)
------------ ------------ ------------
Cash flows from financing activities:
Distributions to partners (1,202,514) (1,202,514) (1,152,415)
Payments on long-term debt and
lease obligations (338,770) (343,400) (367,156)
Net related party transactions 497,804 (229,666) (150,708)
Distributions to venture partners (586,304) (40,905) (86,355)
------------ ------------ ------------
Net cash provided (used) by
financing activities (1,629,784) (1,816,485) (1,756,634)
------------ ------------ ------------
Net increase (decrease) in
cash and cash equivalents 755,273 25,083 (2,418,222)
Cash and cash equivalents, beginning
of year 889,401 864,318 3,282,540
------------ ------------ ------------
Cash and cash equivalents, end of year $ 1,644,674 $ 889,401 $ 864,318
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 20
MEDICAL INCOME PROPERTIES 2A 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 to net cash
provided by operating activities:
Net income $ 1,698,843 $ 1,184,339 $ 1,206,438
----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 752,857 768,270 772,176
Provision for losses on accounts
receivable 176,465 112,022 80,123
Partnership share of unconsolidated
joint venture (income) loss (557,558) (380,202) (227,448)
Minority interest in consolidated
joint venture income (loss) 371,193 324,895 246,667
(Increase) decrease in:
Patient accounts receivable, net 267,748 (478,052) (729,494)
Interest receivable, securities
premium amortization and
securities discount accretion (40,172) 1,743 (26,626)
Estimated third-party payor
settlements (254,233) (122,224) (1,184)
Prepaid expenses and other assets (16,365) 130,062 (93,140)
Increase (decrease) in:
Accounts payable 35,366 230,853 277,447
Accrued expenses 70,309 (202,997) 99,893
Estimated third-party payor
settlements 63,810 340,394 69,555
Other liabilities 30,635 5,057 (2,742)
----------- ----------- -----------
Total adjustments 900,055 729,821 465,227
----------- ----------- -----------
Net cash provided (used) by operations $ 2,598,898 $ 1,914,160 $ 1,671,665
=========== =========== ===========
Supplemental schedule of noncash investing
and financing activities:
Unrealized gain (loss) on marketable
securities available for sale $ (2,588) $ 44,832 $ (38,786)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 21
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Medical Income Properties 2A Limited Partnership (the
Partnership) is a Delaware limited partnership formed on May 14,
1986 that is engaged in the business of acquiring, operating and
holding for investment purposes, income-producing, health care
related properties, primarily nursing homes. The Partnership is
one of a series of three partnerships as represented by the
Partnership Prospectus (Prospectus) dated October 22, 1986,
providing for the sale of 10,000 units at $1,000 per unit (with
an option to increase to 20,000 units per partnership). The
Partnership's first closing on the sale of units was December 9,
1986. The offering closed on June 2, 1987. For the period May 15,
1986 (inception) to August 31, 1987, the Partnership was in the
development stage. On September 1, 1987, the Partnership began
acquiring property.
The general partners are QualiCorp Management, Inc. (a
wholly-owned subsidiary of QualiCorp, Inc.) and QualiCorp
Capital, Inc.
(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, to limited partners with negative balances in their
capital accounts in proportion to such negative balances, to
the extent of the total of such negative balances;
- Second, 1% to the general partners and 99% to the limited
partners until the capital account of each limited partner
is equal to his capital investment; and
- Third, the balance, if any, 85% to the limited partners and
15% to the general partners.
F-7
<PAGE> 22
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- 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 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.
(c) Cash Distributions
Cash distributions shall be made quarterly within 45 days after
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 first to creditors and
then 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.
(d) Per Unit Information
Limited partnership information per unit is based on units
outstanding of 18,639 in 1996, 1995 and 1994.
(e) Patient Service Revenue
Patient service revenue is recorded at the nursing homes'
established rates with contractual adjustments ($6,510,438 in
1996, $6,182,176 in 1995, and $4,915,980 in 1994), provision for
uncollectible accounts, bad debts ($176,465 in 1996, $112,022 in
1995, and $80,123 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 currently estimated final settlements due from or to
third-party programs.
F-8
<PAGE> 23
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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.
(f) Property and Equipment
Property and equipment are stated at cost. Items capitalized
under capital lease obligations are recorded at their fair market
value at the inception of the lease. Depreciation of the
buildings is provided over their estimated useful lives of thirty
years on the straight-line method. Equipment and other personal
property are depreciated over five to seven years on the
straight-line method.
(g) Income Taxes
Taxable income is allocated to the individual partners and,
therefore, no income taxes have been provided for in these
financial statements.
(h) Cash Equivalents Policy
For the 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.
(i) 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 $2,427,666
(inclusive of unconsolidated joint ventures) at December 31, 1996
and $380,063 at December 31, 1995. The 1996 and 1995 amounts do
not include the total of commingled funds discussed in Note 7.,
since the amount in excess of FDIC limits related to these funds
is not determinable.
(j) Marketable Securities
The classification of marketable securities is determined at the
date of purchase. Gains or losses on the sale of securities are
recognized on a specific identification basis. Marketable
securities represent an investment of excess funds as a part of
the Partnership's cash management policies. These securities are
considered to be available for sale under Statement of Financial
Accounting Standards No. 115 and are, thus, stated at fair value.
Unrealized gains and losses are
F-9
<PAGE> 24
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
recognized as a component of partners' capital as is required by
SFAS No. 115.
(k) 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. ACQUISITIONS
On September 1, 1987, the Partnership acquired Muscle Shoals Nursing
Home, Oak Crest Nursing Home, and Shoals Nursing Home located in
Alabama for $6,625,000 plus capitalized acquisition costs and fees of
$165,612. In 1988 an additional $344,631 of acquisition costs and fees
were capitalized. While the transaction is recorded as a purchase, the
property was subject to a capitalized lease obligation (see Note 6) of
$1,685,000. Title is held by a governmental entity until the lease
obligation expires in 2008, at which time title passes to the
Partnership. In 1993 the mortgage associated with this capitalized
lease was repaid with proceeds of a new mortgage note (see Note 6).
The lease continues at $1 per year until the lease expires.
On March 1, 1988, the Partnership acquired Edwardsville West Nursing
Home, now known as University Manor, located in Illinois for
$4,200,000 plus capitalized acquisition fees and costs of $311,738.
The property was subject to Industrial Revenue Bonds outstanding of
$1,269,723.
On July 1, 1988, the Partnership acquired 54.55% of Medical Park
Nursing Home (The Alabama Joint Venture) located in Alabama for
$2,782,050 plus capitalized acquisition costs of $206,893. Medical
Income Properties 2B Limited Partnership (MIP2B) purchased the
remaining 45.45% of Medical Park. The assets and liabilities of
Medical Park have been consolidated in the financial statements of the
Partnership with a minority interest in 45.45% of the net assets
recorded.
Medical Park's equity at December 31, 1996 and 1995 was $4,621,101 and
$5,097,502, respectively, and it had net income of $816,707, $714,840
and $542,722 for the years ended December 31, 1996, 1995 and 1994,
respectively.
The acquisitions have been accounted for under the purchase method of
accounting. Consequently, only operations subsequent to the
F-10
<PAGE> 25
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
acquisition date have been included in the accompanying financial
statements.
Note 3. MARKETABLE SECURITIES
Marketable securities consist of U.S. Treasury securities. The
following schedule summarizes marketable securities activity for the
years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Beginning balance, amortized cost $ 2,155,709 $ 2,190,057
Purchase of marketable securities 1,543,752 755,533
Redemption of investments (1,400,000) (783,981)
Net amortization of premiums and
accretion of discounts 36,463 (5,900)
----------- -----------
Amortized cost 2,335,924 2,155,709
Gross unrealized gain 3,456 6,046
----------- -----------
Fair value $ 2,339,380 $ 2,161,755
=========== ===========
</TABLE>
The maturities of investment securities at December 31, 1996 were as
follows:
<TABLE>
<S> <C>
Due in one year or less $ 751,357
Due in two years or less 1,584,567
$2,335,924
</TABLE>
Note 4. INVESTMENT IN JOINT VENTURES
The Partnership has invested in two joint ventures with MIP2B, an
affiliated limited partnership.
The Alabama Joint Venture
The Alabama Joint Venture includes only Medical Park which is
accounted for as a purchase and is consolidated in these financial
statements as described in Note 2 above.
The Texas Joint Venture
The Texas Joint Venture is accounted for under the equity method. On
May 1, 1988 the Partnership purchased 50% of the Renaissance Place -
Katy Nursing Home located in Texas for $2,736,250 plus capitalized
acquisition costs and fees of $254,645. Also, on the same date, the
Partnership purchased 50% of Renaissance Place -
F-11
<PAGE> 26
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Humble Nursing Home located in Texas for $2,243,750 plus capitalized
acquisition costs and fees of $114,406.
The condensed balance sheet information for the investment in joint
venture as of December 31, 1996 and 1995 and operating statement
information for each of the years in the three-year period ending
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Katy 1996 1995
---- ---- ----
<S> <C> <C>
Current assets $2,501,874 $1,684,094
Long-term assets 4,771,630 5,048,138
---------- ----------
Total assets $7,273,504 $6,732,232
========== ==========
Current liabilities $ 860,008 $ 684,328
Long-term liabilities -- --
---------- ----------
Equity 6,413,496 6,047,904
Total liabilities
and equity $7,273,504 $6,732,232
========== ==========
Partnership's investment
at December 31,
1996 and 1995 $3,206,748 $3,023,952
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $5,039,616 $4,985,129 $3,700,538
Expenses 4,385,765 4,362,005 3,505,169
---------- ---------- ----------
Net income $ 653,851 $ 623,124 $ 195,369
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Humble 1996 1995
------ ---- ----
<S> <C> <C>
Current assets $1,498,372 $1,140,926
Long-term assets 3,377,314 3,651,762
---------- ----------
Total assets $4,875,686 $4,792,688
========== ==========
Current liabilities $ 677,478 $ 703,933
Long-term liabilities 631,250 691,850
Equity 3,566,958 3,396,905
---------- ----------
Total liabilities
and equity $4,875,686 $4,792,688
========== ==========
Partnership's investment
at December 31,
1996 and 1995 $1,783,479 $1,698,453
========== ==========
</TABLE>
F-12
<PAGE> 27
<TABLE>
<CAPTION>
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Humble (con't) 1996 1995 1994
-------------- ---- ---- ----
<S> <C> <C> <C>
Revenues $4,415,307 $3,664,088 $3,373,417
Expenses 3,954,042 3,526,809 3,113,890
---------- ----------
Net income $ 461,265 $ 137,279 $ 259,527
========== ========== ==========
</TABLE>
Note 5. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and consists of the
following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 493,528 $ 493,528
Buildings and improvements 10,383,782 10,141,958
Furniture and equipment 2,194,993 2,076,727
Property under capitalized lease 6,550,539 6,550,539
------------ ------------
Total 19,622,842 19,262,752
Accumulated depreciation and amortization (6,606,798) (5,868,721)
------------ ------------
Net property and equipment $ 13,016,044 $ 13,394,031
============ ============
</TABLE>
Note 6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mortgage notes secured by interest in capitalized lease with
interest at prime plus 1% (9.25% at December 31, 1996 and 9.50%
at December 31, 1995) payable in 60 payments of $22,728 plus
interest through April 26, 1998, with a balloon payment due
May 26, 1998 $ 3,113,705 $ 3,386,439
Industrial Revenue Bonds secured by real estate, payable at a
variable rate of interest (7.755% at December 31, 1996 and
8.225% at December 31, 1995) with monthly principal and interest
payments of $10,802 through April 1, 2005. The interest rate is
adjusted every May 1 and November 1. 788,521 854,557
----------- -----------
3,902,226 4,240,996
Less amounts due in one year
or less 343,697 337,075
----------- -----------
$ 3,558,529 $ 3,903,921
=========== ===========
</TABLE>
F-13
<PAGE> 28
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The aggregate annual maturities of bonds and notes payable for the
succeeding five fiscal years are as follows:
<TABLE>
<S> <C>
1997 $ 343,697
1998 2,917,638
1999 82,829
2000 89,486
2001 96,677
Thereafter 371,899
----------
$3,902,226
==========
</TABLE>
The Partnership leases certain property, plant and equipment under a
capital lease. The mortgage associated with this capital lease
obligation was repaid in 1993 (see Note 2). The capital lease expires
in 2008.
The mortgage note is secured by all real estate owned by the
Partnership. The General Partner of MIP2A has guaranteed the debt, as
well as pledged its stock and partnership interest. The management
company (See Note 9) has 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.
Note 7. RELATED PARTY TRANSACTIONS
QualiCorp, Inc. charged the Partnership $144,527 in 1996, $136,679 in
1995 and $147,110 in 1994 for administrative expenses (primarily
salaries). QualiCorp, Inc. also charged the Partnership $235,223 in
1996 for property management fees.
As a result of the consolidation of Medical Park as described in Note
2. above, amounts due to The Alabama Joint Venture from MIP2B are
included in the amounts due from affiliates. Details of the amounts
due from affiliates at December 31 are as follows:
F-14
<PAGE> 29
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from affiliates of the general
partner $ -- $371,954
Due from MIP2B 473,417 382,517
$473,417 $754,471
</TABLE>
Details of the amounts due to affiliates at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due to QualiCorp, Inc. $ 248,108 $ 31,358
Due to The Texas Joint Venture 212,456 212,456
---------- ----------
$ 460,564 $ 243,814
========== ==========
</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 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 loaned $371,954 to the other
entities, and had earned interest of $33,229 from this arrangement.
See Footnote 14 for sale of affiliated assets.
Note 8. 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:
F-15
<PAGE> 30
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income as reported $ 1,698,843 $ 1,184,339 $ 1,206,438
Adjustments:
Depreciation differences 2,767 34,742 60,405
Insurance deductible -- (76,360) --
Bad debt reserve 22,955 71,255 10,571
Vacation accrual 39,240 21,768 23,613
Nondeductible meals, and
entertainment 23,941 27,867 12,725
----------- ----------- -----------
Federal taxable income $ 1,787,746 $ 1,263,611 $ 1,313,752
=========== =========== ===========
Federal taxable income per
limited partnership unit
outstanding $ 89.20 $ 63.05 $ 65.55
=========== =========== ===========
</TABLE>
Note 9. CONTRACTUAL AGREEMENTS
In 1988, the Partnership entered into management agreements whereby
the Manager is required to perform certain services at each of the
nursing facilities. Each of the agreements had an initial five-year
term with one additional five-year option that was exercised in 1993.
Fees were based on 6% of gross collected operating revenues through
June 30, 1992. Thereafter they were based on 5% of gross collected
operating revenues, but not less than $816,000 in a calendar year and
were increased by an inflation factor after 1992. The Manager has a
right of first refusal to match a bona fide offer made by an outside
party to purchase or lease each of the nursing facilities. The
management agreements, as amended, contained a termination clause.
The management agreements were amended on January 1, 1995. The
amendments call for fixed monthly management fees totaling $79,234
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. The termination on sale clauses were amended to base the fees on
a sum equal to the discounted present value of the monthly management
fees as of the date of termination of the agreements times the number
of months remaining in the management agreements 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
F-16
<PAGE> 31
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
rate of ten percent (10%) and then further discounted by a factor of
thirty-three and one-third percent (33 1/3%).
Management fees charged to the Partnership were $988,841 in 1996,
$950,808 in 1995, and $914,238 in 1994.
Note 10. CONTINGENCY
On May 1, 1990, the Texas Joint Venture, of which the Partnership owns
50%, began self insuring its workmen's compensation claims for two
nursing home facilities located in Texas. Accrued liabilities have
been estimated to cover all asserted and unasserted claims and
assessments and funds have been escrowed to cover such claims.
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 11. RENTALS UNDER OPERATING LEASES
The Partnership leases certain minor equipment under various operating
leases. The following is a schedule by years of minimum future rentals
on operating leases as of December 31, 1996:
<TABLE>
<S> <C>
1997 $ 1,851
</TABLE>
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 13.75% 16.18% 17.73%
Medicaid 60.80% 65.72% 64.55%
Medicare 25.45% 18.10% 17.72%
------- ------- -------
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
F-17
<PAGE> 32
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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 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:
Investment securities available from sale: These securities are
being carried at fair market value as determined by quoted market
prices.
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 cash,
accounts receivable and accounts payable.
Note 14. SUBSEQUENT EVENT
On February 3, 1997, Medical Income Properties 2A 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.
F-18
<PAGE> 33
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The purchase price is allocated among the facilities as follows:
<TABLE>
<S> <C>
Oakcrest Nursing Home (109 beds) $ 3,605,000
Shoals Nursing Home (103 beds) 4,052,000
Muscle Shoals Nursing Home (90 beds) 3,766,000
University Manor (120 beds) 2,200,000
Medical Park Convalescent Center
(183 beds) - 54.55% ownership 5,427,725
Renaissance Place - Katy (130 beds) -
50% ownership 2,984,500
Renaissance Place - Humble (120 beds) -
50% ownership 2,487,500
-----------
Proceeds from sale $24,522,725
===========
</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 $7,432,000.
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 or waived, the closing can be extended to
a date no later than July 31, 1997. Approximately $904,550 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 $870,000 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> 34
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The Texas Joint Venture was formed on April 29, 1988,
and is engaged in the business of acquiring, operating
and holding for investment purposes, income-producing,
health care related properties, primarily nursing
homes. The joint venture partners are Medical Income
Properties 2A Limited Partnership and Medical Income
Properties 2B Limited Partnership. Each partner owns
50% of the Joint Venture. Both partners are part of a
series of three Delaware limited partnerships as
represented by a Partnership Prospectus dated October
22, 1986. The Texas Joint Venture currently owns and
operates two nursing homes in Texas.
(b) Allocation of Net Profits and Net Losses
Net profits and net losses are shared equally by the
partners.
(c) Cash Distributions
Cash distributions are made quarterly within 45 days
after the end of the quarter. Cash flow shall be
distributed equally to the partners. Sale or financing
proceeds will be distributed first to creditors and
then to the partners equally.
(d) Patient Service Revenue
Patient service revenue is recorded at the nursing
homes' established rates with contractual adjustments
($3,502,579 in 1996, $4,015,882 in 1995 and $2,929,956
in 1994), provision for uncollectible accounts, (bad
debt expense of $41,632 in 1996, $108,332 in 1995 and
$67,766 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 currently estimated final
settlements due from or to third-party programs. Final
determination of amounts earned is subject to audit by
the intermediaries. Differences between estimated
provisions and
F-30
<PAGE> 35
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
final settlement will be reflected as charges or
credits to operating revenues in the year the cost
reports are finalized.
(e) Property and Equipment
Property and equipment are stated at cost.
Depreciation of the buildings is provided over their
estimated useful lives of thirty years on the
straight-line method. Equipment and other personal
property are depreciated over five to seven years on
the straight-line method.
(f) Income Taxes
Taxable income is allocated to the partners and,
therefore, no income taxes have been provided for in
these financial statements.
(g) Cash Equivalents Policy
For the purposes of the statements of cash flows, the
Joint Venture considers all highly liquid debt
instruments with an original maturity of three months
or less to be cash equivalents.
(h) Uninsured Cash Balances
The Joint Venture 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 $531,586 at December 31, 1996
and $274,391 at December 31, 1995. The 1995 amount
includes the total of commingled funds discussed in
Note 8., since the amount in excess of FDIC limits
related to these funds is not determinable.
(i) Marketable Securities
The classification of marketable securities is
determined at the date of purchase. Gains or losses on
the sale of securities are recognized on a specific
identification basis. Marketable securities represent
an investment of excess funds as a part of the Joint
Venture's cash management policies. These securities
are considered to be available for sale under Statement
of Financial Accounting Standards No. 115 and are,
thus, stated at fair value. Unrealized gains and
losses are recognized as a component of partners'
capital as is required by SFAS No. 115.
F-31
<PAGE> 36
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
(j) 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. ACQUISITIONS
On May 1, 1988, the Joint Venture purchased Renaissance Place -
Katy Nursing Home located in Texas for $5,472,500 plus
capitalized acquisition costs and fees of $509,290. The seller
took back a note for $300,000 due May 1, 1992, that has
subsequently been paid.
On May 1, 1988, the Joint Venture purchased Renaissance Place -
Humble Nursing Home located in Texas for $4,487,500 plus
capitalized acquisition costs and fees of $228,812.
Note 3. MARKETABLE SECURITIES
Marketable securities consist of U.S. Treasury securities. The
following schedule summarizes marketable securities activity for
the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Beginning balance, amortized cost $1,402,286 $1,394,565
Purchase of marketable securities 1,642,784 503,438
Redemption of investments (900,000) (500,000)
Net amortization of premiums and
accretion of discounts 37,857 4,283
----------- ----------
Amortized cost 2,182,927 1,402,286
Gross unrealized gain (loss) 7,913 7,384
---------- ----------
Fair value $2,190,840 $1,409,670
========== ==========
</TABLE>
The maturities of investment securities at December 31, 1996 were as follows:
<TABLE>
<S> <C>
Due in one year or less $ 500,713
Due in two years or less 1,682,214
----------
$2,182,927
==========
</TABLE>
F-32
<PAGE> 37
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 950,000 $ 950,000
Buildings and improvements 9,550,624 9,525,253
Furniture and equipment 1,136,348 1,118,289
----------- -----------
Total 11,636,972 11,593,542
Accumulated depreciation (3,918,600) (3,483,409)
----------- -----------
Net property and equipment $ 7,718,372 $ 8,110,133
=========== ===========
</TABLE>
Note 5. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mortgage note with a variable
rate of interest (9.25% at
December 31, 1996 and 9.5% at
December 31, 1995) with monthly
principal and interest payments of
$5,050 through April 26, 1998, with
a balloon payment due May 26, 1998. $ 691,850 $ 752,450
Less amounts due in one year
or less 60,600 60,600
---------- ----------
$ 631,250 $ 691,850
========== ==========
</TABLE>
The aggregate annual maturities of long-term debts are as follows:
1997 $ 60,600
1998 631,250
---------
$ 691,850
=========
The mortgage note is secured by all real estate owned by the
Joint Venture, as well as the real estate owned by The Alabama
Joint Venture. Both the Joint Venture and The Alabama Joint
Venture are jointly owned by the Medical Income Properties 2A
Limited Partnership (MIP2A) and the Medical Income Properties 2B
Limited Partnership (MIP2B). The General Partner of MIP2A and
MIP2B has guaranteed the debt, as well as pledged its stock and
partnership interest. The management company (See Note 6) has
also guaranteed the debt and entered into a negative pledge
agreement whereby it will not pledge, transfer or encumber its
stock while the loan is outstanding. All management fees are
subordinate to the debt. The loan document contains restrictive
covenants associated with ratio
F-33
<PAGE> 38
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
and earnings requirements. Management is not aware of any
conditions that exist that would cause them to be in
noncompliance with these requirements.
Note 6. CONTRACTUAL AGREEMENTS
On May 1, 1988, the Joint Venture entered into a management
agreement whereby the Manager is required to perform certain
services. The agreement had an initial five-year term with one
additional five-year option that was exercised in 1993. Fees
were based on 6% of gross collected operating revenues through
June 30, 1992. Thereafter they were based on 5% of gross
collected operating revenues, but not less than $324,000 in a
calendar year and were increased by an inflation factor after
1992. These fees are subordinated to the outstanding mortgage
debt (See Note 5). The Manager has a right of first refusal to
match a bona fide offer made by an outside party to purchase or
lease the nursing home. The management agreement, as amended,
contained a termination clause.
The management agreement was amended on January 1, 1995. The
amendment calls for a fixed monthly management fee of $31,379
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 agreement
expires December 31, 1998. The termination on sale clause was
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%). 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%).
Management fees charged to the Joint Venture were $391,610 in
1996, $376,548 in 1995, and $362,065 in 1994.
Note 7. INCOME TAXES
No provision for income taxes is made in the financial
statements since taxable income is reported in the tax returns
of the partners.
F-34
<PAGE> 39
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
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 as reported $ 1,115,116 $ 760,403 $ 454,896
Adjustments:
Depreciation differences 37,528 56,349 74,970
Bad debt reserve (26,045) 75,856 16,294
Nondeductible travel and
entertainment 9,231 9,770 6,430
Accrued insurance - (80,000) -
Vacation accrual 12,128 23,280 15,272
---------- --------- ---------
Federal taxable income $1,147,958 $ 845,658 $ 567,862
========== ========= =========
</TABLE>
Note 8. RELATED PARTY TRANSACTIONS
Details of the amounts due from affiliates at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from MIP2A $ 212,456 $ 212,456
Due from MIP2B 210,631 210,631
Due from affiliates of the general
partner - 153,911
---------- -----------
Due from affiliates $ 423,087 $ 576,998
========== ==========
</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 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 joint venture
partners state that no General Partner shall have the authority
to cause the joint venture partners to make loans other than in
connection with the purchase, sale or disposition of partnership
property. The Articles of Limited Partnership also state the
joint venture partners' funds may not be commingled with any
other entities' funds except as necessary for the operation of
the partnerships.
F-35
<PAGE> 40
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
At December 31, 1995, the Joint Venture had loaned $153,911 to
the other entities, and had earned interest of $24,238 from this
arrangement.
See Footnote 12 for sale of affiliated assets.
Note 9. CONTINGENCY
On May 1, 1990, the Joint Venture began self insuring its
workmen's compensation claims for its two nursing home
facilities. Accrued liabilities have been estimated to cover all
asserted and unasserted claims and assessments and funds have
been escrowed to cover such claims. The Joint Venture maintains
insurance or reserves that it believes are adequate to meet the
needs of the Joint Venture.
While the Joint Venture Partners have been named as a defendant
in several lawsuits, nothing has come to the attention of the
Joint Venture that leads it to believe that it is exposed to a
risk of material loss not covered by insurance or reserves.
The real estate owned by The Texas Joint Venture is mortgaged as
security on debt incurred by a joint venture partner - Medical
Income Properties 2A Limited partnership (MIP2A). This debt is
also secured by all other real estate owned by MIP2A. The total
outstanding debt secured by all these properties is $3,805,555.
Note 10. CONCENTRATIONS IN REVENUE SOURCES
The Joint Venture 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 15.07% 18.05% 19.42%
Medicaid 39.62% 38.99% 47.81%
Medicare 45.31% 42.96% 32.77%
------ ------ ------
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-36
<PAGE> 41
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 11. 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 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:
Investment securities available from sale: These
securities are being carried at fair market value as
determined by quoted market prices.
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 cash, accounts receivable
and accounts payable.
Note 12. SUBSEQUENT EVENT
On February 3, 1997, Medical Income Properties 2A Limited
Partnership and Medical Income Properties 2B Limited
Partnership, the general partners of The Texas Joint Venture,
entered into a purchase agreement with Omega HealthCare
Investors, Inc. to sell all of the real and personal property of
the nursing home facilities.
F-37
<PAGE> 42
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
The purchase price is allocated among the facilities as follows:
Renaissance Place - Katy (130 beds) $ 5,969,000
Renaissance Place - Humble (120 beds) 4,975,000
-----------
Proceeds from sale $10,944,000
===========
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 $2,505,000.
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 or waived, the closing can be extended to a date
no later than July 31, 1997. Approximately $365,000 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
$400,000 will also be held in reserve by the Alabama Joint
Venture 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-38
<PAGE> 43
[LETTERHEAD] SELF & MAPLES, P.A.
INDEPENDENT AUDITORS' REPORT
ON ADDITIONAL INFORMATION
To the Partners
The Texas Joint Venture
Our report on our audits of the basic financial statements of The Texas Joint
Venture 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 12, as to which the date is February 3, 1997
F-39
<PAGE> 44
THE TEXAS JOINT VENTURE
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 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Balance at beginning of year $ 132,796 $ 56,941 $ 40,647
Charged to patient service
revenues (67,678) (32,477) (51,472)
Write-offs 41,632 108,332 67,766
--------- --------- --------
Balance at end of year $ 106,750 $ 132,796 $ 56,941
========= ========= ========
</TABLE>
F-40
<PAGE> 45
THE TEXAS JOINT VENTURE
SCHEDULE X
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Professional care of patients
Nursing salaries and wages $2,442,501 $2,469,846 $2,197,347
Ancillary services expense 1,830,025 1,714,698 940,266
Supplies 138,992 151,705 107,170
Temporary labor 4,380 83,851 32,084
General and administrative
Salaries and wages 236,614 207,708 192,944
Accounting and auditing 87,134 64,745 69,999
Insurance 132,282 13,436 48,076
Property tax 249,483 237,917 223,764
Management fees 391,610 376,548 362,065
Dietary
Food 298,273 291,648 279,660
Household and plant
Repairs and maintenance 73,771 103,388 73,199
Utilities 190,141 165,204 175,535
Depreciation $ 435,191 $ 444,905 $ 443,765
========== ========== ==========
</TABLE>
F-41
<PAGE> 46
THE TEXAS JOINT VENTURE
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<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>
RENAISSANCE PLACE-KATY $ 0 $ 650,000 $4,822,500 $503,346 $509,290
RENAISSANCE PLACE-HUMBLE 691,850 300,000 4,187,500 435,524 228,812
-------- ----------------------- --------------------
$691,850 $ 950,000 $9,010,000 $938,870 $738,102
======== ======================= ====================
<CAPTION>
LIFE ON WHICH
GROSS AMOUNT AT WHICH CARRIED DEPRECIATION
AS OF DECEMBER 31, 1996(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>
RENAISSANCE PLACE-KATY $650,000 $ 5,835,136 $ 6,485,136 $2,082,569 1984 05/01/88 5 TO 30 YEARS
RENAISSANCE PLACE-HUMBLE 300,000 4,851,836 5,151,836 1,836,031 1987 05/01/88 5 TO 30 YEARS
-------------------------------------- ----------
$950,000 $10,686,972 $11,636,972 $3,918,600
====================================== ==========
</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 $11,636,972.
(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 $11,593,542 $11,292,495 $10,939,816
Additions 43,430 301,047 352,679
Reductions 0 0 0
----------- ----------- -----------
Balance at end of period $11,636,972 $11,593,542 $11,292,495
=========== =========== ===========
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 3,479,409 $ 3,038,503 $ 2,594,737
Depreciation expense (3,479,409) 440,906 443,766
Reductions 0 0 0
----------- ----------- -----------
Balance at end of period $ 3,918,600 $ 3,479,409 $ 3,038,503
=========== =========== ===========
</TABLE>
F-42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MEDICAL INCOME PROPERTIES 2A 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> 1,644,674
<SECURITIES> 2,339,380
<RECEIVABLES> 2,404,734
<ALLOWANCES> 225,011
<INVENTORY> 0
<CURRENT-ASSETS> 7,044,565
<PP&E> 11,636,972
<DEPRECIATION> 3,918,600
<TOTAL-ASSETS> 25,542,844
<CURRENT-LIABILITIES> 3,129,654
<BONDS> 3,558,529
0
0
<COMMON> 0
<OTHER-SE> 16,753,786<F1>
<TOTAL-LIABILITY-AND-EQUITY> 25,542,844
<SALES> 0
<TOTAL-REVENUES> 208,244,455
<CGS> 0
<TOTAL-COSTS> 18,591,372
<OTHER-EXPENSES> 344,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 376,001
<INCOME-PRETAX> 1,698,843
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,698,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,698,843
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>5.02(31) REPRESENTS TOTAL PARTNERSHIP CAPITAL INCLUDING NET INCOME NET OF
DISTRIBUTIONS PAID.
</FN>
</TABLE>
