<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-K
<TABLE>
<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NUMBER 33-6122-01
MEDICAL INCOME PROPERTIES 2A
LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 59-2724921
(State of Organization) (IRS Employer
Identification Number)
</TABLE>
1100 Abernathy Road, Building 500, Suite 715
Atlanta, GA 30328
Address of Principal Executive Office)
(770) 668-1080
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
Limited Partnership Units
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant is not applicable. The number of limited partnership units
outstanding as of March 23, 1998 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.................................................. 2
Item 3: Legal Proceedings........................................... 2
Item 4: Submission of Matters to a Vote of Security Holders......... 2
PART II
Item 5: Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 2
Item 6: Selected Financial Data..................................... 2
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 3
Item 8: Financial Statements and Supplementary Data................. 4
Item 9: Disagreements on Accounting and Financial Disclosure........ 4
PART III
Item 10: Directors and Executive Officers of the Registrant.......... 4
Item 11: Executive Compensation...................................... 5
Item 12: Security Ownership of Certain Beneficial Owners and
Management.................................................. 5
Item 13: Certain Relationships and Related Transactions.............. 5
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 6
Signatures............................................................ 7
</TABLE>
i
<PAGE> 3
PART I
ITEM 1. BUSINESS
Medical Income Properties 2A Limited Partnership (the "Partnership"), is a
Delaware limited partnership which was organized on May 14, 1986. 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 and employed approximately 502 employees. The
Partnership sold all of its operating assets on March 31, 1997. For the
remainder of 1997, the Partnership was in the process of winding up its business
and liquidating (the "Liquidation"). The Liquidation is anticipated to continue
until approximately May 31, 2000, due to certain reimbursement policies of
Medicaid and Medicare.
BUSINESS STRATEGY
The Partnership was formed for the purpose of investing primarily in
existing, improved, medically related, income-producing commercial properties,
such as medical office buildings and nursing homes. The Partnership's business
strategy was to hold real property investments, primarily health care related,
until such time as a sale or other disposition appears to be advantageous to the
Partnership's limited partners (the "Limited Partners") based on such factors as
potential capital appreciation, industry trends, cash flow and federal income
tax consequences to the Limited Partners.
SALE AGREEMENT
Effective on February 3, 1997, the Partnership entered into a Purchase and
Sale Agreement (the "Sale Agreement") with Qualicorp Management, Inc., the
managing general partner of the Partnership, and Omega Healthcare Investors,
Inc. (the "Purchaser") regarding the sale to the Purchaser of the Partnership's
interests in its facilities and the personal property and intangible assets
related to the operation of those facilities.
The description of the Sale Agreement set forth herein does not purport to
be complete and is qualified in its entirety 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.
The closing of the asset sale was contingent upon, among other factors,
consent to the transaction by the Limited Partners. The Partnership solicited
the consent of the Limited Partners in the Partnership's Consent Solicitation
Statement dated March 12, 1997, and the Limited Partners consented to the Sale
Agreement on March 28, 1997. The Partnership closed the transactions
contemplated by the asset sale on March 31, 1997.
Because the Purchaser had not obtained all of the necessary state approvals
for the transfer of operation of the Partnership's facilities, the Partnership
entered into an interim leasing arrangement with the Purchaser to provide
management and operation of the facilities for Omega until such approvals were
received. The interim leasing arrangements terminated on May 31, 1997, after the
Purchaser obtained the required approvals. Accordingly, effective as of May 31,
1997, the Partnership no longer owns any real property and has no employees.
Pursuant to the Sale Agreement, the Partnership received aggregate net
proceeds of $20,552,089. Proceeds from the Sale Agreement are being distributed
to the Limited Partners in installments as described below:
1. First Installment. The Limited Partners were asked to surrender
their partnership certificates in order to obtain the first installment
check on May 13, 1997. Limited Partners who returned their certificates
received a check in the amount of $1,003 per Unit.
2. Second Installment. A second distribution of $140 per Unit was
made on July 11, 1997. This distribution was primarily attributable to the
collection of accounts receivable in the period subsequent to the closing
less the payment of accounts payable and other liabilities, including
reserves set aside for contingencies that will be distributed in 1998 and
thereafter if no longer needed.
<PAGE> 4
3. Final Installment(s). A final distribution consisting of remaining
unspent reserves is anticipated to be made following the expiration of the
Partnership's representations and warranties to the Purchaser and any
additional period required to finally resolve any claims for
indemnification against the Partnership brought prior to the termination of
such period.
ITEM 2. PROPERTIES
At December 31, 1997, the Partnership did not own or lease any property.
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
No matters were submitted to a vote of the Limited Partners during the
fourth quarter of the fiscal year covered by this Report.
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 1,400 Limited Partners as of March 23, 1998. Distributions paid per
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, 1993 to December 31, 1997
is shown below (000's omitted except for per share data and distributions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994 1993
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Total Revenue......................... $ 8,465 $20,824 $19,050 $17,906 $16,607
Operating Income...................... (463) 2,233 1,941 1,994 2,624
Loss from Discontinued Operations..... (257) -- -- -- --
Gain on Sale of Properties............ 7,162 -- -- -- --
Net Income............................ 6,600 1,699 1,184 1,206 1,651
Per Share Data:
Net Income per Limited Partnership
Unit............................... $ 353.27 $ 84.76 $ 59.09 $ 60.20 $ 82.36
Financial Condition:
Total Assets.......................... $ 13,231 $25,543 $25,186 $24,703 $24,479
Bonds, Notes and Capitalized Lease
Obligations........................ -- 3,902 4,241 4,584 4,951
Partner's Capital..................... 1,743 16,754 16,260 16,233 16,218
Distributions per Limited Partner Unit:
First Quarter......................... $ 15.00 $ 15.00 $ 15.00 $ 12.50 $ 8.75
Second Quarter........................ 0.00 15.00 15.00 15.00 8.75
Third Quarter......................... 0.00 15.00 15.00 15.00 10.00
Fourth Quarter........................ 0.00 15.00 15.00 15.00 10.00
Special Distribution of Sales
Proceeds........................... $1,143.00 -- -- -- --
</TABLE>
2
<PAGE> 5
Quarterly Financial data for the period January 1, 1995 to December 31,
1997 (000's omitted):
<TABLE>
<CAPTION>
1997
-------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total Revenue........................................ $5,551 $3,781 $ 5 $ (872)
Operating Income..................................... 570 97 (80) (1,050)
Gain on Sale of Properties........................... 6,682 (142) -- 622
Net Income (loss).................................... 7,111 (11) (1) (499)
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue....................................... $5,080 $5,051 $5,082 $ 5,611
Operating Income.................................... 580 532 522 599
Net Income.......................................... 435 325 457 482
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<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>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Partnership discontinued its operations on May 31, 1997, following the
closing of the sale of substantially all of its assets and the termination of
the interim operating arrangements. The Managing General Partner is in the
process of winding up the business and liquidating the Partnership. The
discussion of the Sale Agreement and the Liquidation is incorporated by
reference to Item 1. The Partnership is presently collecting its remaining
accounts receivable, paying vendors the remaining balances owed, and filing
terminating Medicare and Medicaid cost reports.
LIQUIDITY AND CAPITAL RESERVES
Cash and equivalent balances totaled $1,520,944 as of December 31, 1997, a
decrease of $123,730 compared to December 31, 1996, primarily due to cash
received from the asset sale. Cash provided from operations decreased from
$2,598,898 in 1996 to $1,865,810 in 1997. This difference primarily resulted
from lower accounts receivable collection and higher costs of operation.
Payments for capital expenditures were reduced from $360,089 in 1996 to
$27,179 in 1997, primarily because limited capital expenditures were made prior
to the asset sale, and no such expenditures were made after the asset sale.
During 1997, the Partnership paid distributions to Limited Partners
totaling $1,158 per unit, which includes $1,143 return of capital from sale
proceeds returned to Limited Partners in the first two distributions of
liquidation proceeds. The Partnership made the first installment of the
liquidation proceeds totaling $18,694,917 or $1,003 per unit on May 12, 1997,
and the second installment totaling $2,609,450 or $140 per unit on July 11,
1997.
The Partnership will make a final distribution of any remaining funds
following the expiration of the periods within which claims for breach of
representations and warranties and claims by Medicare, Medicaid or other third
parties may be made against the Partnership either by contract or under
applicable law.
3
<PAGE> 6
RESULTS OF OPERATIONS
Fiscal Year 1997 Compared to 1996
The Partnership's net income for the year ended December 31, 1997 was
$6,600,046, compared to $1,698,843 in the previous year. The increase was
primarily due to the gains realized from the asset sale.
Revenues and operating expenses for 1997 were $8,464,925 and $8,927,668,
respectively, compared to $20,824,455 and $18,591,372 in 1996, the substantial
differences primarily due to the fact that the Partnership suspended all
business operations on May 31, 1997 and incurred substantial costs associated
with the asset sale. As a result of the foregoing, a net operating loss of
$462,743 for 1997 occurred.
Other income (expenses) reflects higher interest income in 1997 primarily
due to interest earned on the proceeds from the asset sale.
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
During the Partnership's two most recent fiscal years, the Partnership did
not change accountants and had no disagreement with its accountants on any
matters of accounting principles or practices or financial statement disclosure.
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, 1997 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" at pages 28 through 30 of
the Prospectus, which pages are specifically incorporated by reference herein.
The 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........... 61 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.......... 55 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.
</TABLE>
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.
4
<PAGE> 7
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no officers or directors. No director or officer of the
Managing General Partner received any remuneration from the Partnership for the
three years ended December 31, 1997. The Partnership paid to Qualicorp, Inc.,
the parent of QMI $195,582 in 1997 as reimbursement for administrative expenses
(primarily salaries) incurred during the year. In addition, during 1997, the
Partnership paid to Qualicorp, Inc. $90,213 for property management fees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
(2) NAME/ADDRESS (3) AMOUNT/NATURE
(1) TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (4) PERCENT OF CLASS
------------------ -------------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Partnership Units......... MacKenzie Patterson, Inc.* 2,417 Units Approximately 12.97%
1640 School Street
Suite 100
Moraga, CA 94556
</TABLE>
- ---------------
* JDF and Associates, LLC, Previously Owned Partnerships Income Fund II, L.P.,
Mackenzie Patterson Special Fund, L.P. Mackenzie Fund VI, Morago Gold, LLC,
and certain of the foregoing parties' affiliates are entities commonly
controlled by MacKenzie Patterson, Inc., which as of December 31, 1997, owned
2,417 (or approximately 12.97%) of the Partnership's outstanding units.
No other person or group is known by the Partnership to own beneficially
more than 5% of the outstanding units of the Partnership.
SECURITY OWNERSHIP OF MANAGEMENT
No executive officers and directors of QMI owned any units in the
Partnership at December 31, 1997. QualiCorp, Inc., parent of QMI, the
Partnership's Managing General Partner, held 42 units in the Partnership at
December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Qualicorp Inc., the parent of QMI, charged the following amounts for
property management fees and administrative expenses to the Partnership during
the periods shown:
<TABLE>
<CAPTION>
PROPERTY ADMINISTRATIVE
YEAR MANAGEMENT FEES EXPENSES
- ---- --------------- --------------
<S> <C> <C>
1997..................................................... $ 90,213 $195,582
1996..................................................... 235,223 144,527
1995..................................................... 0 136,679
</TABLE>
Under the Partnership Agreement, the General Partners are entitled to
participate in distributions of the Partnership's Cash Flow as described under
the caption "Management Compensation" at pages 24 through 26 of the Prospectus.
Cash distributions of $21,044, $84,175 and $84,175, were made to the General
Partners during 1997, 1996 and 1995, respectively. The General Partners also
share in the Partnership's net profits and net losses.
5
<PAGE> 8
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. The Partnership's financial statements and supplementary information
appear in a separate section of this Form 10-K commencing on pages referenced
below:
<TABLE>
<S> <C>
Independent Auditor's Report................................ F-1
Financial Statements
Balance Sheets............................................ F-2
Statements of Operations.................................. F-3
Statements of Partners' Capital........................... F-5
Statements of Cash Flow................................... F-7
Notes to Financial Statements............................. F-9
Independent Auditor's Report on Information Accompanying the
Basic Financial Statements................................ F-21
Schedule VIII -- Valuation and Qualifying Accounts and
Reserves for Allowances for Doubtful Accounts............. F-22
Schedule X -- Consolidated Supplementary Income Statement
Information............................................... F-23
Schedule XI -- Real Estate and Accumulated Depreciation..... F-24
</TABLE>
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.
<TABLE>
<C> <C> <S>
2. -- Purchase and Sale Agreement (the "Sale Agreement") dated
February 3, 1997 (filed as an exhibit to the company's Form
8-K filed February 18, 1997, and as an appendix to the
Partnership's Consent Solicitation Statement dated March 12,
1997).
3-A. -- The Prospectus of the Registrant dated October 11, 1984 as
supplemented August 8, 1985, August 14, 1985, October 2,
1985 and November 21, 1985 and filed pursuant to Rule 424(b)
under the Securities Act of 1933 and Preliminary Supplement
and Amendment Number 5 dated November 29, 1985 is hereby
incorporated herein by reference.
3-B. -- Amended and Restated Articles of Limited Partnership set
forth as Exhibit A to the Prospectus, incorporated herein by
reference.
(b) -- No reports on Form 8-K were filed during the fourth quarter
of the fiscal year ended December 31, 1997.
</TABLE>
6
<PAGE> 9
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
Date: March 30, 1998
By: /s/ JOHN H. STODDARD
----------------------------------
John H. Stoddard
President, Director, Chief
Financial Officer and Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME POSITION DATE
---- -------- ----
<C> <S> <C>
/s/ JOHN M. DEBLOIS Chairman of the Board March 30, 1998
- -----------------------------------------------------
John M. DeBlois
/s/ JOHN H. STODDARD President, Director, Chief March 30, 1998
- ----------------------------------------------------- Financial Officer and
John H. Stoddard Principal Accounting Officer
</TABLE>
7
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
8
<PAGE> 11
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<PAGE> 12
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report................................. F-1
Financial Statements
Balance Sheets............................................ F-2
Statements of Operations.................................. F-3 - F-4
Statements of Partners' Capital........................... F-5 - F-6
Statements of Cash Flows.................................. F-7 - F-8
Notes to Financial Statements............................. F-9 - F-20
Information Accompanying the Basic Financial Statements
Independent Auditors' Report on Information............... F-21
Accompanying the Basic Financial Statements
Schedule of Valuation and Qualifying Accounts
and Reserves for Allowances for Doubtful Accounts....... F-22
Schedule of Consolidated Supplementary Income
Statement Information................................... F-23
Schedule of Real Estate and Accumulated Depreciation...... F-24
</TABLE>
<PAGE> 13
[SELF, MAPLES & COPELAND, P.C. 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, 1997 and 1996 and the related statements of
operations, partners' capital and cash flows for each of the years in the
three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Self, Maples & Copeland, P.C.
Oneonta, Alabama
January 23, 1998
F-1
<PAGE> 14
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,520,944 $ 1,644,674
Marketable securities 1,154,640 2,339,380
Patient accounts receivable, net of allowance
for doubtful accounts of $10,000
in 1997 and $225,011 in 1996 75,523 2,179,723
Interest receivable -- 13,914
Estimated third-party payor settlements 224,839 739,842
Prepaid expenses and other assets -- 127,032
----------- -----------
Total current assets 2,975,946 7,044,565
Investment in joint ventures 6,302,656 4,986,273
Property and equipment, net of
accumulated depreciation -- 13,016,044
Deferred financing costs, net of
accumulated amortization of
$0 in 1997 and $54,075 in 1996 -- 22,545
Due from affiliates 3,952,035 473,417
----------- -----------
Total assets $13,230,637 $25,542,844
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current maturities of long-term debt $ -- $ 343,697
Accounts payable 62,925 906,261
Accrued payroll and payroll taxes -- 309,380
Accrued vacation -- 247,096
Accrued insurance 75,169 43,126
Accrued management fees -- 82,403
Patient deposits and trust liabilities -- 128,204
Other accrued expenses 257,409 91,947
Estimated third-party payor settlements 1,386,798 516,976
Due to affiliates 5,658,630 460,564
----------- -----------
Total current liabilities 7,440,931 3,129,654
Long-term debt, net of current maturities -- 3,558,529
----------- -----------
Total liabilities 7,440,931 6,688,183
Venture partners' minority interest 4,047,063 2,100,875
----------- -----------
Partners' capital
Limited partners 1,742,643 16,709,571
General partners -- 44,215
----------- -----------
Total partners' capital 1,742,643 16,753,786
----------- -----------
Total liabilities and partners' capital $13,230,637 $25,542,844
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 15
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Revenues
Net patient service revenue $8,447,113 $20,783,193 $19,017,059
Other revenue 17,812 41,262 32,618
---------- ----------- -----------
Total revenue 8,464,925 20,824,455 19,049,677
---------- ----------- -----------
Operating expenses
Professional care of patients 4,680,052 10,347,837 9,205,785
Dietary 684,037 1,657,865 1,609,770
Household and plant 754,415 1,723,483 1,714,594
General and administrative 1,508,448 3,169,133 2,890,356
Employee health and welfare 417,560 940,197 919,299
Depreciation and amortization 182,687 752,857 768,645
Lease 700,469 -- --
---------- ----------- -----------
Total operating expenses 8,927,668 18,591,372 17,108,449
---------- ----------- -----------
Operating income (loss) (462,743) 2,233,083 1,941,228
---------- ----------- -----------
Other income (expenses)
Interest income 417,963 206,257 157,839
Interest expense (99,493) (376,001) (419,354)
Provider fees (232,705) (550,861) (550,681)
Minority interest in
consolidated joint venture (35,687) (371,193) (324,895)
Partnership share of
unconsolidated joint
venture income 108,002 557,558 380,202
---------- ----------- -----------
Total other income
(expenses) 158,080 (534,240) (756,889)
---------- ----------- -----------
Income (loss) before recognition
of property sales and loss
on discontinued operations (304,663) 1,698,843 1,184,339
Gain on sale of properties 7,162,118 -- --
Loss from discontinued operations (257,409) -- --
---------- ----------- -----------
Net income $6,600,046 $ 1,698,843 $ 1,184,339
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 16
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income attributable
to limited partners $6,584,543 $1,579,924 $1,101,435
Net income attributable
to general partners 15,503 118,919 82,904
---------- ---------- ----------
$6,600,046 $1,698,843 $1,184,339
========== ========== ==========
Net income (loss) per limited partnership unit outstanding:
Continuing operations $ (15.20) $ 84.76 $ 59.09
Sale of properties 381.31 -- --
Discontinued operations (12.84) -- --
---------- ---------- ----------
Net income (loss) per unit $ 353.27 $ 84.76 $ 59.09
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 17
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Limited Partners
----------------------- General
Units Amount Partners Total
------ ----------- -------- -----------
<S> <C> <C> <C> <C>
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-5
<PAGE> 18
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Limited Partners
------------------------ General
Units Amount Partners Total
------ ------------ -------- ------------
<S> <C> <C> <C> <C>
Distributions to
partners ($1,158.00 per
limited partnership
unit outstanding) -- $(21,583,962) $(21,044) $(21,605,006)
Net income (loss) before
recognition of property
sales and loss on
discontinued operations -- (283,337) (21,326) (304,663)
Loss from discontinued
operations -- (239,390) (18,019) (257,409)
Gain on property sales -- 7,145,511 16,607 7,162,118
Unrealized loss on
marketable securities
available for sale -- (5,750) (433) (6,183)
------ ------------ -------- ------------
Partners' capital at
December 31, 1997 18,639 $ 1,742,643 $ -- $ 1,742,643
====== ============ ======== ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 19
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patient care $ 11,757,512 $ 21,020,618 $ 18,528,805
Interest and dividends received 346,209 166,085 159,582
Other operating receipts 17,812 41,262 32,618
Cash paid to suppliers and
employees (9,923,525) (17,702,205) (15,836,810)
Interest paid (99,493) (376,001) (419,354)
Provider fees (232,705) (550,861) (550,681)
------------ ------------ ------------
Net cash provided (used) by operations 1,865,810 2,598,898 1,914,160
------------ ------------ ------------
Cash flows from investing activities:
Investments in joint ventures (105,000) -- --
Purchases of marketable securities -- (1,543,752) (755,533)
Maturities of marketable securities 1,250,000 1,400,000 783,981
Capital expenditures (27,179) (360,089) (391,040)
Cash proceeds from the sale of property 20,552,089 -- --
Distributions from joint
ventures 22,500 290,000 290,000
------------ ------------ ------------
Net cash provided (used)
by investing activities 21,692,410 (213,841) (72,592)
------------ ------------ ------------
Cash flows from financing activities:
Distributions to partners (21,605,006) (1,202,514) (1,202,514)
Payments on long-term debt and
lease obligations (26,956) (338,770) (343,400)
Net related party transactions (1,785,212) 497,804 (229,666)
Distributions to venture partners (264,776) (586,304) (40,905)
------------ ------------ ------------
Net cash provided (used) by
financing activities (23,681,950) (1,629,784) (1,816,485)
------------ ------------ ------------
Net increase (decrease) in
cash and cash equivalents (123,730) 755,273 25,083
Cash and cash equivalents, beginning
of year 1,644,674 889,401 864,318
------------ ------------ ------------
Cash and cash equivalents, end of year $ 1,520,944 $ 1,644,674 $ 889,401
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 20
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 6,600,046 $ 1,698,843 $ 1,184,339
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 182,687 752,857 768,270
Provision for losses on accounts
receivable 85,760 176,465 112,022
Partnership share of unconsolidated
joint venture (income) loss (108,002) (557,558) (380,202)
Minority interest in consolidated
joint venture income (loss) 35,687 371,193 324,895
(Gain) loss on disposal of property (7,162,118) -- --
(Increase) decrease in:
Patient accounts receivable, net 2,018,440 267,748 (478,052)
Interest receivable, securities
premium amortization and
securities discount accretion (71,754) (40,172) 1,743
Estimated third-party payor
settlements 515,003 (254,233) (122,224)
Prepaid expenses and other assets (178,626) (16,365) 130,062
Increase (decrease) in:
Accounts payable (844,106) 35,366 230,853
Accrued expenses (243,895) 70,309 (202,997)
Estimated third-party payor
settlements 869,822 63,810 340,394
Other liabilities 166,866 30,635 5,057
----------- ----------- -----------
Total adjustments (4,734,236) 900,055 729,821
----------- ----------- -----------
Net cash provided (used) by operations $ 1,865,810 $ 2,598,898 $ 1,914,160
=========== =========== ===========
Supplemental schedule of noncash investing
and financing activities:
Unrealized gain (loss) on marketable
securities available for sale $ 6,183 $ (2,588) $ 44,832
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-8
<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.
As described in Note 13, the Partnership has sold all its
fixed and operating assets and is in the process of
liquidating the remainder of its assets for distribution to
the partners and subsequent dissolution.
(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
F-9
<PAGE> 22
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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.
- 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 1997, 1996 and 1995.
(e) Patient Service Revenue
Patient service revenue is recorded at the nursing homes'
established rates with contractual adjustments ($3,842,705 in
1997, $6,510,438 in 1996, and $6,182,176 in 1995), provision
for uncollectible accounts, bad debts ($85,760 in 1997,
$176,465 in 1996, and $112,022 in 1995) 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-10
<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
$1,797,011 (inclusive of unconsolidated joint ventures) at
December 31, 1997 and $2,427,666 at December 31, 1996.
(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
recognized as a component of partners' capital as is required
by SFAS No. 115.
F-11
<PAGE> 24
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(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, 1997 and 1996 was $8,903,567 and
$4,621,101, respectively, and it had net income of $4,864,608, $816,707
and $714,840 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The acquisitions have been accounted for under the purchase method of
accounting. Consequently, only operations subsequent to the acquisition
date have been included in the accompanying financial statements.
F-12
<PAGE> 25
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO 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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Beginning balance, amortized cost $ 2,335,924 $ 2,155,709
Purchase of marketable securities -- 1,543,752
Redemption of investments (1,250,000) (1,400,000)
Net amortization of premiums and
accretion of discounts 71,436 36,463
----------- -----------
Amortized cost 1,157,360 2,335,924
Gross unrealized gain(loss) (2,720) 3,456
----------- -----------
Fair value $ 1,154,640 $ 2,339,380
=========== ===========
</TABLE>
The maturities of investment securities at December 31, 1997 were as
follows:
<TABLE>
<S> <C>
Due in one year or less $ 1,157,360
===========
</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 - 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, 1997 and 1996 and operating statement
F-13
<PAGE> 26
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
information for each of the years in the three-year period ending
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Katy 1997 1996
- ---- ---------- ----------
<S> <C> <C>
Current assets $ 905,555 $2,501,874
Long-term assets 7,017,221 4,771,630
---------- ----------
Total assets $7,922,776 $7,273,504
========== ==========
Current liabilities $ 192,769 $ 860,008
Equity 7,730,007 6,413,496
---------- ----------
Total liabilities
and equity $7,922,776 $7,273,504
========== ==========
Partnership's investment
at December 31,
1997 and 1996 $3,865,004 $3,206,748
========== ==========
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues $2,301,862 $5,039,616 $4,985,129
Gain on sale 1,056,481 -- --
Expenses 2,227,982 4,385,765 4,362,005
---------- ---------- ----------
Net income $1,130,361 $ 653,851 $ 623,124
========== ========== ==========
<CAPTION>
Humble 1997 1996
- ------ ---------- ----------
<S> <C> <C>
Current assets $ 894,188 $1,498,372
Long-term assets 4,250,593 3,377,314
---------- ----------
Total assets $5,144,781 $4,875,686
========== ==========
Current liabilities $ 264,265 $ 677,478
Long-term liabilities -- 631,250
Equity 4,880,516 3,566,958
---------- ----------
Total liabilities
and equity $5,144,781 $4,875,686
========== ==========
Partnership's investment
at December 31,
1997 and 1996 $2,440,258 $1,783,479
========== ==========
</TABLE>
F-14
<PAGE> 27
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Humble (con't) 1997 1996 1995
- -------------- ---------- ---------- ----------
<S> <C> <C> <C>
Revenues $1,861,707 $4,415,307 $3,664,088
Gain on sale 1,195,281 -- --
Expenses 1,719,582 3,954,042 3,526,809
---------- ---------- ----------
Net income $1,337,406 $ 461,265 $ 137,279
========== ========== ==========
</TABLE>
Note 5. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and consists of the
following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- ------------
<S> <C> <C>
Land $ -- $ 493,528
Buildings and improvements -- 10,383,782
Furniture and equipment -- 2,194,993
Property under capitalized lease -- 6,550,539
-------- ------------
Total -- 19,622,842
Accumulated depreciation and
amortization -- (6,606,798)
-------- ------------
Net property and equipment $ -- $ 13,016,044
======== ============
</TABLE>
Note 6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- -----------
<S> <C> <C>
Mortgage notes secured by interest
in capitalized lease with interest at
prime plus 1% (9.25% at December 31,
1996) $ -- $ 3,113,705
Industrial Revenue Bonds secured by
real estate, payable at a variable
rate of interest (7.755% at December
31, 1996). The interest rate was
adjusted every May 1 and November 1. -- 788,521
-------- -----------
-- 3,902,226
Less amounts due in one year
or less -- 343,697
-------- -----------
$ -- $ 3,558,529
======== ===========
</TABLE>
The Partnership leased certain property, plant and equipment under a
capital lease. The mortgage associated with this capital lease
obligation was repaid in 1993 (see Note 2).
F-15
<PAGE> 28
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The mortgage note was secured by all real estate owned by the
Partnership. The General Partner of MIP2A had guaranteed the debt, as
well as pledged its stock and partnership interest. The management
company (See Note 9) had also guaranteed the debt and entered into a
negative pledge agreement whereby they would not pledge, transfer or
encumber their stock while the loan was outstanding. All management
fees were subordinate to the debt. The loan document contained
restrictive covenants associated with ratio and earnings requirements.
Management is not aware of any conditions that existed that would have
caused them to be in noncompliance with these requirements.
Note 7. RELATED PARTY TRANSACTIONS
QualiCorp, Inc. charged the Partnership $195,582 in 1997, $144,527 in
1996 and $136,679 in 1995 for administrative expenses (primarily
salaries). QualiCorp, Inc. also charged the Partnership $90,213 in 1997
and $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. The amount due from MIP 2B
to The Alabama Joint Venture was $3,665,680 at December 31, 1997 and
$473,417 at December 31, 1996. The remaining difference of $286,355 at
December 31, 1997 represents a disproportionate share of funds
distributed from The Alabama Joint Venture to MIP 2B. Details of the
amounts due from affiliates at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Due from MIP2B $3,952,035 $473,417
========== ========
</TABLE>
Details of the amounts due to affiliates at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Due to QualiCorp, Inc. $ 24,724 $248,108
Due to The Texas Joint Venture 5,633,906 212,456
---------- --------
$5,658,630 $460,564
========== ========
</TABLE>
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.
F-16
<PAGE> 29
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
See Footnote 13 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:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Net income as reported $ 6,600,046 $1,698,843 $ 1,184,339
Adjustments:
Depreciation differences (9,687) 2,767 34,742
Gain on sale 378,281 -- --
Insurance deductible -- -- (76,360)
Bad debt reserve (250,657) 22,955 71,255
Vacation accrual (260,618) 39,240 21,768
Nondeductible meals, and
entertainment 11,495 23,941 27,867
----------- ---------- -----------
Federal taxable income $ 6,468,860 $1,787,746 $ 1,263,611
=========== ========== ===========
Federal taxable income per
limited partnership unit
outstanding $ 344.29 $ 89.20 $ 63.05
=========== ========== ===========
</TABLE>
Note 9. CONTRACTUAL AGREEMENTS
In 1988, the Partnership entered into management agreements whereby the
Manager was 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 had 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 called 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
F-17
<PAGE> 30
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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 rate of ten percent
(10%) and then further discounted by a factor of thirty-three and
one-third percent (33 1/3%). The sale as described in Note 13 includes
the terminating settlement.
Management fees charged to the Partnership were $401,652 in 1997,
$988,841 in 1996, and $950,808 in 1995.
Pursuant to the sales agreement described in Note 13, on April 1, 1997,
the Partnership entered into a triple net lease with Omega HealthCare
Investors, Inc. (Omega) to lease all of the properties the Partnership
had previously sold to Omega. The lease expired on December 31, 1997
subject to various extension/termination rights of the Lessor. The
Lessor exercised its option to terminate the lease on May 31, 1997. The
lease payment was based on a fixed amount of base rent plus the net of
the remainder of gross revenue over operating expenses. The base rental
lease expense for the two months was $519,110 and gross revenue was
$181,359 in excess of operating expense for the same period. Total
operating lease expense was $700,469.
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.
F-18
<PAGE> 31
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The Partnership has been named as a defendant in a wrongful death suit.
Counsel estimates that the potential liability could range from one to
three million dollars, which is in excess of insurance coverage.
Note 11. 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
Partnership's income from each of these sources for the years ended
December 31, 1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Private pay patients 15.41% 13.75% 16.18%
Medicaid 53.40% 60.80% 65.72%
Medicare 31.19% 25.45% 18.10%
------ ------ ------
Total 100.00% 100.00% 100.00%
====== ====== ======
</TABLE>
The percentage attributable to private pay patients includes only
amounts due for services where the primary payer is a private source.
The Medicaid and Medicare percentages include amounts due from those
programs as well as the patient's financial responsibility incurred
under these contracts.
Note 12. 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.
F-19
<PAGE> 32
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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 13. SALE OF ASSETS
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.
The purchase price was 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 were reduced by expenses incurred as a result of
the sale, cash offsets for liabilities assumed by the buyer and
existing indebtedness. These payments approximated $5,949,000. They
included $1,974,520 for termination of the management agreement as
explained in Note 9.
The closing took place on March 31, 1997. Approximately $904,550 of
these proceeds were 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.
As described in Note 9, the Partnership continued to operate the
nursing homes until May 31, 1997.
In conjunction with the above sale, Omega HealthCare Investors, Inc.
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 related to a
131 bed nursing home in Patterson, Louisiana and the purchase price for
the assets was $5,350,000.
F-20
<PAGE> 33
[SELF, MAPLES & COPELAND, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
ON ADDITIONAL INFORMATION
To the Partners
Medical Income Properties 2A Limited Partnership
Our report on our audits of the basic financial statements of Medical Income
Properties 2A Limited Partnership for 1997 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 & Copeland, P.C.
Oneonta, Alabama
January 23, 1998
F-21
<PAGE> 34
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 225,011 $ 190,934 $ 168,203
Charged to patient service
revenue (310,771) (142,388) (89,291)
Write-offs 85,760 176,465 112,022
--------- --------- ---------
Balance at end of year $ -- $ 225,011 $ 190,934
========= ========= =========
</TABLE>
F-22
<PAGE> 35
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
SCHEDULE X
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Professional care of patients
Salaries and wages $2,505,786 $5,850,800 $5,561,231
Ancillary service expenses 1,519,351 2,928,951 2,160,552
Supplies and pharmaceuticals 394,579 847,669 750,624
Temporary labor -- -- 46,869
General and administrative
Salaries and wages 362,775 510,373 502,629
Accounting and auditing 119,782 225,425 185,395
Insurance 97,569 585,444 595,953
Property tax 20,257 68,773 69,709
Management fees 401,652 988,841 950,808
Property management fees 90,213 235,223 --
Cost reimbursement 195,582 144,527 136,679
Dietary
Food cost 312,356 778,824 748,440
Household and plant
Repairs and maintenance 99,147 194,608 210,971
Utilities 198,893 492,459 482,949
Depreciation $ 178,992 $ 738,076 $ 753,489
========== ========== ==========
</TABLE>
F-23
<PAGE> 36
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED GROSS AMOUNT AT WHICH CARRIED
TO PARTNERSHIP(A) SUBSEQUENT TO AS OF DISPOSITION DATE(B)
ACQUISITION
BUILDING AND CARRYING BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS TOTAL
- --------------------- ------------ --------------------- ---------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MUSCLE SHOALS $0 $ 55,610 $ 2,227,047 $ 304,910 $113,945 $ 67,138 $2,645,902 $2,713,040
SHOALS 0 44,636 2,412,436 482,101 126,526 44,636 3,021,063 3,065,699
OAK CREST 0 56,316 2,083,684 238,513 104,160 56,316 2,426,357 2,482,673
UNIVERSITY MANOR 0 82,000 4,407,718 427,930 82,000 4,835,648 4,917,648
MEDICAL PARK (54.55%
INTEREST) 0 400,000 5,424,540 646,422 400,000 6,070,962 6,470,962
-- -------- ----------- ---------- -------- -------- ----------- -----------
$0 $638,562 $16,555,425 $2,099,876 $344,631 $650,090 $18,999,932 $19,650,022
== ======== =========== ========== ======== ======== =========== ===========
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
ACCUMULATED DATE OF DATE OPERATION IS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
- --------------------- ------------ -----------------------------------------
<S> <C> <C> <C> <C>
MUSCLE SHOALS $ 993,184 1974/1986 09/01/87 27.5 YEARS
SHOALS 1,144,932 1966/1968 09/01/87 27.5 YEARS
OAK CREST 896,888 1961/1968 09/01/87 27.5 YEARS
UNIVERSITY MANOR 1,618,224 1984 03/01/88 40 YEARS
MEDICAL PARK (54.55%
INTEREST) 2,132,563 1969/1980 07/01/88 27.5 YEARS
----------
$6,785,791
==========
</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 the date of disposition for
Federal Income tax purposes was approximately $19,650,022.
(C) Reconciliation of real estate owned at December 31, 1997, 1996, and
1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period $ 19,622,842 $19,262,752 $18,871,714
Additions 27,180 360,090 391,038
Reductions (19,650,022) 0 0
------------ ----------- -----------
Balance at end of period $ 0 $19,622,842 $19,262,752
============ =========== ===========
</TABLE>
(D) Reconciliation of accumulated depreciation:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of period $ 6,606,798 $5,868,721 $5,115,233
Depreciation expense 178,993 738,077 753,488
Reductions (6,785,791) 0 0
----------- ---------- ----------
Balance at end of period $ 0 $6,606,798 $5,868,721
=========== ========== ==========
</TABLE>
F-24
<PAGE> 37
THE TEXAS JOINT VENTURE
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<PAGE> 38
THE TEXAS JOINT VENTURE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' 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 - F-6
Notes to Financial Statements.......................... F-7 - F-14
Information Accompanying the Basic Financial Statements
Independent Auditors' Report on Information
Accompanying the Basic Financial Statements.......... F-15
Schedule of Valuation and Qualifying Accounts
and Reserves for Allowances for Doubtful Accounts.... F-16
Schedule of Consolidated Supplementary Income
Statement Information................................ F-17
Schedule of Real Estate and Accumulated Depreciation... F-18
</TABLE>
<PAGE> 39
[SELF, MAPLES & COPELAND, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
The Texas Joint Venture
We have audited the balance sheets of The Texas Joint Venture as of December 31,
1997 and 1996 and the related statements of operations, partners' capital and
cash flows for each of the three years in the three-year period ended December
31, 1997. These financial statements are the responsibility of the Joint
Venture'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 The Texas Joint Venture as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for each of the three years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Self, Maples & Copeland, P.C.
Oneonta, Alabama
January 23, 1998
F-1
<PAGE> 40
THE TEXAS JOINT VENTURE
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,158 $ 770,794
Marketable securities 1,755,480 2,190,840
Patient accounts receivable, net of allowance
for doubtful accounts of $5,301
in 1997 and $106,750 in 1996 25,678 849,065
Interest receivable 14,889 16,304
Estimated third-party payor settlements -- 137,964
Prepaid expenses and other assets 1,538 35,279
----------- -----------
Total current assets 1,799,743 4,000,246
Property and equipment, net of
accumulated depreciation -- 7,718,372
Due from affiliates 11,267,814 423,087
Deferred financing costs, net of
accumulated amortization of
$0 in 1997 and $18,935 in 1996 -- 7,485
----------- -----------
Total assets $13,067,557 $12,149,190
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current maturities of long-term debt $ -- $ 60,600
Accounts payable 20,932 697,963
Accrued payroll and payroll taxes -- 164,591
Accrued vacation -- 105,438
Accrued insurance 200,000 200,788
Accrued management fees -- 32,634
Estimated third-party payor settlements 236,102 149,694
Patient deposits and trust liabilities -- 97,367
Other accrued expenses -- 28,411
----------- -----------
Total current liabilities 457,034 1,537,486
Long-term debt, net of current maturities -- 631,250
----------- -----------
Total liabilities 457,034 2,168,736
----------- -----------
Partners' capital 12,610,523 9,980,454
----------- -----------
Total liabilities and partners' capital $13,067,557 $12,149,190
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 41
THE TEXAS JOINT VENTURE
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Net patient service revenue $ 4,040,739 $ 9,325,900 $ 8,647,019
Other revenue 607 2,102 2,198
----------- ----------- -----------
Total revenue 4,041,346 9,328,002 8,649,217
----------- ----------- -----------
Operating expenses
Professional care of
patients 2,290,880 4,966,189 4,812,691
Dietary 268,940 628,473 616,733
Household and plant 267,464 637,129 618,775
General and administrative 640,509 1,248,000 1,063,756
Employee health and welfare 154,428 350,952 355,508
Depreciation and
amortization 111,244 440,475 450,189
Lease 193,849 -- --
----------- ----------- -----------
Total operating expenses 3,927,314 8,271,218 7,917,652
----------- ----------- -----------
Operating income 114,032 1,056,784 731,565
----------- ----------- -----------
Other income (expenses)
Interest income 122,223 126,921 107,160
Interest expense (20,250) (68,589) (78,322)
----------- ----------- -----------
Total other income (expense) 101,973 58,332 28,838
----------- ----------- -----------
Income before recognition
of property sales 216,005 1,115,116 760,403
Gain on sale of properties 2,251,762 -- --
----------- ----------- -----------
Net income $ 2,467,767 $ 1,115,116 $ 760,403
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 42
THE TEXAS JOINT VENTURE
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
MEDICAL INCOME PROPERTIES
LIMITED PARTNERSHIPS
--------------------
2A 2B TOTAL
----------- ----------- ------------
<S> <C> <C> <C>
Partners' capital at
December 31, 1994 $ 4,614,504 $ 4,614,503 $ 9,229,007
Distributions to
partners (290,000) (290,000) (580,000)
Net income 380,202 380,201 760,403
Unrealized gain on
marketable securities
available for sale 17,699 17,700 35,399
----------- ----------- ------------
Partners' capital at
December 31, 1995 4,722,405 4,722,404 9,444,809
Distributions to
partners (290,000) (290,000) (580,000)
Net income 557,558 557,558 1,115,116
Unrealized gain on
marketable securities
available for sale 264 265 529
----------- ----------- ------------
Partners' capital at
December 31, 1996 4,990,227 4,990,227 9,980,454
Capital contribution 105,000 105,000 210,000
Distributions to
partners (22,500) (22,500) (45,000)
Income before recognition
of property sales 108,003 108,002 216,005
Gain on sale of properties 1,125,881 1,125,881 2,251,762
Unrealized loss on
marketable securities
available for sale (1,349) (1,349) (2,698)
----------- ----------- ------------
Partners' capital at
December 31, 1997 $ 6,305,262 $ 6,305,261 $ 12,610,523
=========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 43
THE TEXAS JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patient care $ 5,088,498 $ 9,416,614 $ 8,404,007
Interest received 56,300 77,586 91,364
Other operating receipts 607 2,102 2,198
Cash paid to suppliers and
employees (4,682,628) (7,831,212) (7,362,426)
Interest paid (20,250) (68,589) (78,322)
----------- ----------- -----------
Net cash provided (used) by operations 442,527 1,596,501 1,056,821
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (52,577) (43,430) (301,045)
Purchases of marketable securities -- (1,642,784) (503,438)
Maturities of marketable securities 500,000 900,000 500,000
----------- ----------- -----------
Net cash provided (used) by investing
activities 447,423 (786,214) (304,483)
----------- ----------- -----------
Cash flows from financing activities:
Payments on long-term debt and
lease obligations (5,073) (60,600) (65,177)
Distributions to partners (45,000) (580,000) (580,000)
Capital contributions from partners 210,000 -- --
Net related party transactions (1,818,513) 153,911 (410,680)
----------- ----------- -----------
Net cash provided (used) by financing
activities (1,658,586) (486,689) (1,055,857)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents (768,636) 323,598 (303,519)
Cash and cash equivalents, beginning
of year 770,794 447,196 750,715
----------- ----------- -----------
Cash and cash equivalents, end of year $ 2,158 $ 770,794 $ 447,196
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 44
THE TEXAS JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 2,467,767 $ 1,115,116 $ 760,403
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 111,244 440,475 450,189
Provision for losses on accounts
receivable 44,396 41,582 108,332
(Gain) loss on disposal of property (2,251,762) -- --
(Increase) decrease in:
Patient accounts receivable, net 778,991 (173,095) (185,722)
Interest receivable, securities
premium amortization and
securities discount accretion (65,923) (49,335) (4,283)
Estimated third-party payor
settlements 137,964 64,280 (177,135)
Prepaid expenses and other assets (71,647) 8,253 4,746
Increase (decrease) in:
Accounts payable (677,031) 109,738 37,306
Accrued expenses (96,789) (90,569) 66,161
Estimated third-party payor
settlements 86,408 149,694 --
Other liabilities (21,091) (19,638) (3,176)
----------- ----------- -----------
Total adjustments (2,025,240) 481,385 296,418
----------- ----------- -----------
Net cash provided (used) by operations $ 442,527 $ 1,596,501 $ 1,056,821
=========== =========== ===========
Supplemental schedule of noncash investing
and financing activities:
Unrealized gain (loss) on marketable
securities available for sale $ (2,698) $ 529 $ 35,399
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 45
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 owned and operated two nursing
homes in Texas.
As described in Note 12, the Partnership has sold all its
fixed and operating assets and is in the process of
liquidating the remainder of its assets for distribution to
the partners and subsequent dissolution.
(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 ($1,540,182 in
1997, $3,502,579 in 1996 and $4,015,882 in 1995), provision
for uncollectible accounts, (bad debt expense of $44,396 in
1997, $41,632 in 1996 and $108,332 in 1995) 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.
F-7
<PAGE> 46
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
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
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. The amount in excess of insured limits was
approximately $531,586 at December 31, 1996.
(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-8
<PAGE> 47
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, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Beginning balance, amortized cost $2,182,927 $1,402,286
Purchase of marketable securities -- 1,642,784
Redemption of investments (500,000) (900,000)
Net amortization of premiums and
accretion of discounts 67,341 37,857
---------- ----------
Amortized cost 1,750,268 2,182,927
Gross unrealized gain (loss) 5,212 7,913
---------- ----------
Fair value $1,755,480 $2,190,840
========== ==========
</TABLE>
The maturities of investment securities at December 31, 1997 were as
follows:
<TABLE>
<S> <C>
Due in one year or less $1,153,405
Due in two years or less 596,863
----------
$1,750,268
==========
</TABLE>
F-9
<PAGE> 48
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>
1997 1996
-------- ------------
<S> <C> <C>
Land $ -- $ 950,000
Buildings and improvements -- 9,550,624
Furniture and equipment -- 1,136,348
Total -- 11,636,972
Accumulated depreciation -- (3,918,600)
-------- ------------
Net property and equipment $ -- $ 7,718,372
======== ============
</TABLE>
Note 5. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Mortgage note with a variable
rate of interest (9.50% at
December 31, 1996) with monthly
principal and interest payments of
$5050. $ - $691,850
Less amounts due in one year
or less - 60,600
-------- --------
$ - $631,250
======== ========
</TABLE>
The mortgage note was 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 had guaranteed the debt, as well as pledged
its stock and partnership interest. The management company (See Note 6)
had also guaranteed the debt and had entered into a negative pledge
agreement whereby it would not pledge, transfer or encumber its stock
while the loan was outstanding. All management fees are subordinate to
the debt. The loan document contained restrictive covenants associated
with ratio and earnings requirements. Management is not aware of any
conditions that existed that would have caused them to be in
noncompliance with these requirements.
F-10
<PAGE> 49
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 6. CONTRACTUAL AGREEMENTS
On May 1, 1988, the Joint Venture entered into a management agreement
whereby the Manager was 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 were subordinated to the outstanding
mortgage debt (See Note 5). The Manager had 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
called 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%). The sale as described in Note 12 includes
the terminating settlement.
Management fees charged to the Joint Venture were $160,600 in 1997,
$391,610 in 1996, and $376,548 in 1995.
Pursuant to the sales agreement described in Note 12, on April 1, 1997,
the Partnership entered into a triple net lease with Omega HealthCare
Investors, Inc. (Omega) to lease all of the properties the Partnership
had previously sold to Omega. The lease expired on December 31, 1997
subject to various extension/termination rights of the Lessor. The
Lessor exercised its option to terminate the lease on May 31, 1997. The
lease payment was based on a fixed amount of base rent plus the net of
the remainder of gross revenue over operating expenses. The base rental
lease expense for the two
F-11
<PAGE> 50
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
months was $240,998 and gross revenue was $47,149 less than the
operating expense for the same period. Total operating lease expense
was $193,849.
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.
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>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Net income as reported $2,467,768 $1,115,116 $760,403
Adjustments:
Depreciation differences 17,461 37,528 56,349
Gain on sale of assets (26,634) -- --
Bad debt reserve (106,751) (26,045) 75,856
Nondeductible travel and
entertainment 1,394 9,231 9,770
Accrued insurance -- -- (80,000)
Vacation accrual (105,438) 12,128 23,280
---------- ---------- --------
Federal taxable income $2,247,800 $1,147,958 $845,658
========== ========== ========
</TABLE>
Note 8. RELATED PARTY TRANSACTIONS
Details of the amounts due from affiliates at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- --------
<S> <C> <C>
Due from MIP2A $ 5,633,907 $212,456
Due from MIP2B 5,633,907 210,631
----------- --------
Due from affiliates $11,267,814 $423,087
=========== ========
</TABLE>
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.
F-12
<PAGE> 51
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
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.
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, 1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Private pay patients 14.65% 15.07% 18.05%
Medicaid 38.53% 39.62% 38.99%
Medicare 46.82% 45.31% 42.96%
------ ------ ------
Total 100.00% 100.00% 100.00%
====== ====== ======
</TABLE>
The percentage attributable to private pay patients includes only
amounts due for services where the primary payer is a private source.
The Medicaid and Medicare percentages include amounts due from those
programs as well as the patient's financial responsibility incurred
under these contracts.
Note 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
F-13
<PAGE> 52
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
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.
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. SALE OF ASSETS
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.
The purchase price was allocated among the facilities as follows:
<TABLE>
<S> <C>
Renaissance Place - Katy (130 beds) $ 5,969,000
Renaissance Place - Humble (120 beds) 4,975,000
-----------
Proceeds from sale $10,944,000
===========
</TABLE>
Proceeds from the sale were reduced by expenses incurred as a result of
the sale, cash offsets for liabilities assumed by the buyer and
existing indebtedness. These payments approximated $1,828,000. They
included $736,975 for termination of the management agreement as
explained in Note 6.
The closing took place on March 31, 1997. Approximately $365,000 of
these proceeds were set aside in a joint signature account for the
purpose of securing all of the seller's obligations under the purchase
agreement. These funds are being held by the general partners and will
be available to the Partnership in the event that these obligations do
not exceed the funds held in escrow.
As described in Note 6, the Partnership continued to operate the
nursing homes until May 31, 1997.
In conjunction with the above sale, Omega HealthCare Investors, Inc.
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 related to a
131 bed nursing home in Patterson, Louisiana and the purchase price for
the assets was $5,350,000.
F-14
<PAGE> 53
[SELF, MAPLES & COPELAND, P.C. LETTERHEAD]
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 1997 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 & Copeland, P.C.
Oneonta, Alabama
January 23, 1998
F-15
<PAGE> 54
THE TEXAS JOINT VENTURE
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 106,750 $ 132,796 $ 56,941
Charged to patient service
revenues (145,845) (67,678) (32,477)
Write-offs 44,396 41,632 108,332
--------- --------- ---------
Balance at end of year $ 5,301 $ 106,750 $ 132,796
========= ========= =========
</TABLE>
F-16
<PAGE> 55
THE TEXAS JOINT VENTURE
SCHEDULE X
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Professional care of patients
Nursing salaries and wages $ 971,955 $2,442,501 $2,469,846
Ancillary services expense 1,035,055 1,830,025 1,714,698
Supplies 58,615 138,992 151,705
Temporary labor -- 4,380 83,851
General and administrative
Salaries and wages 166,943 236,614 207,708
Accounting and auditing 48,053 87,134 64,745
Insurance 99,507 132,282 13,436
Property tax 104,232 249,483 237,917
Management fees 160,600 391,610 376,548
Dietary
Food 129,590 298,273 291,648
Household and plant
Repairs and maintenance 20,351 73,771 103,388
Utilities 93,657 190,141 165,204
Depreciation $ 109,923 $ 435,191 $ 444,905
========== ========== ==========
</TABLE>
F-17
<PAGE> 56
THE TEXAS JOINT VENTURE
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED GROSS AMOUNT AT WHICH CARRIED
TO PARTNERSHIP(A) SUBSEQUENT TO AS OF DISPOSITION DATE(B)
ACQUISITION
BUILDING AND CARRYING BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS TOTAL
- ------------------------ ------------ -------- ------------ ------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RENAISSANCE PLACE-KATY $ 0 $650,000 $4,822,500 $503,346 $509,290 $650,000 $ 5,835,136 $ 6,485,136
RENAISSANCE PLACE-HUMBLE 0 300,000 4,187,500 438,824 228,812 300,000 4,855,136 5,155,136
----- -------- ---------- -------- -------- -------- ----------- -----------
$ 0 $950,000 $9,010,000 $942,170 $738,102 $950,000 $10,690,272 $11,640,272
===== ======== ========== ======== ======== ======== =========== ===========
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
ACCUMULATED DATE OF DATE OPERATION IS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
- ------------------------ ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
RENAISSANCE PLACE-KATY $2,142,613 1984 05/01/88 5 TO 30 YEARS
RENAISSANCE PLACE-HUMBLE 1,885,910 1987 05/01/88 5 TO 30 YEARS
----------
$4,028,523
==========
</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 the date of disposition for
Federal Income tax purposes was approximately $11,635,801.
(C) Reconciliation of real estate owned at December 31, 1997, 1996, and
1995:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period $11,636,972 $11,593,542 $11,292,495
Additions 3,300 43,430 301,047
Reductions 11,640,272 0 0
----------- ----------- -----------
Balance at end of period $ 0 $11,636,972 $11,593,542
=========== =========== ===========
</TABLE>
(D) Reconciliation of accumulated depreciation:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of period $3,918,600 $3,479,409 $3,038,503
Depreciation expense 109,923 439,191 440,906
Reductions 4,028,523 0 0
---------- ---------- ----------
Balance at end of period $ 0 $3,918,600 $3,479,409
========== ========== ==========
</TABLE>
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,520,944
<SECURITIES> 1,154,640
<RECEIVABLES> 85,523
<ALLOWANCES> 10,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,975,946
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,230,637
<CURRENT-LIABILITIES> 7,440,931
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,742,643<F1>
<TOTAL-LIABILITY-AND-EQUITY> 13,230,637
<SALES> 0
<TOTAL-REVENUES> 8,464,925
<CGS> 0
<TOTAL-COSTS> 8,927,668
<OTHER-EXPENSES> (185,258)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,493
<INCOME-PRETAX> (304,663)
<INCOME-TAX> 0
<INCOME-CONTINUING> (304,663)
<DISCONTINUED> (257,409)
<EXTRAORDINARY> 7,162,118
<CHANGES> 0
<NET-INCOME> 6,600,046
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Represent Total Partnership Capital Including Net Income Net of Distributions.
</FN>
</TABLE>
