<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities and Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
December 31, 1996 33-6122-02
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)
Delaware 59-2726599
-------- ----------
(State of Organization) (IRS Employer Identification Number)
7000 Central Parkway, Suite 850
Atlanta, GA 30328
(Address of Principal Executive Office)
(770) 668-1080
Registrant's Telephone Number, Including Area Code
Securities Registered Pursuant to Section 12 (b) of the Act:
Title of Each Class Name of Each Exchange
- ------------------------- on Which Registered
LIMITED PARTNERSHIP UNITS -------------------
NONE
Indicate by check whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Aggregate market value of the voting stock held by non-affiliates of the
Registrant is not applicable.
The number of limited partnership units outstanding on February 27, 1997 was
10,907.
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
RWB MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
PART I Page
<S> <C>
Item 1: Business 1
Item 2: Properties 3
Item 3: Legal Proceedings 3
Item 4: Submission of Matters to a Vote of Security Holders 3
PART II
Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters 3
Item 6: Selected Financial Data 4
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations 4
Item 8: Financial Statements and Supplementary Data 6
Item 9: Disagreements on Accounting and Financial Disclosure 6
PART III
Item 10: Directors and Executive Officers of the Registrant 6
Item 11: Executive Compensation 7
Item 12: Security Ownership of Certain Beneficial Owners and Management 7
Item 13: Certain Relationships and Related Transactions 7
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 7
Signatures 10
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
Medical Income Properties 2B Limited Partnership (the Partnership), is a
Delaware limited partnership which was organized on April 29, 1987. The
Partnership is one of a series of three limited partnerships as represented by
the registration statement filed with the Securities and Exchange Commission on
October 22, 1986 (the Effective Date), providing for the sale of $10,000,000 of
limited partnership units (the Units), with an option to increase the offering
by an additional $10,000,000. The offering closed on January 31, 1988, upon the
sale of 10,907 units for an aggregate purchase price of $10,907,000.
The purpose of the Partnership is to engage in the business of acquiring and
holding for investment income-producing health care related properties,
primarily nursing homes, and operating such properties as skilled and
intermediate care nursing homes. In 1988, the Partnership acquired a nursing
home in Edwardsville, Illinois, a 45.45% interest in a joint venture nursing
home in Decatur, Alabama and a 50% interest in two joint venture nursing homes
in the Houston, Texas area. The Partnership employed approximately 88 employees
as of February 12, 1997 at its wholly owned facility and 335 employees at the
joint venture properties.
Business Strategy
The Partnership intends to hold real property investments until such time as a
sale or other disposition appears to be advantageous. Such factors as potential
capital appreciation, industry trends, cash flow and federal income tax
consequences to the Limited Partners will be considered before Partnership
property dispositions are made.
The Partnership (the "Partnership") has entered into an asset Purchase and Sale
Agreement effective as of February 3, 1997 (the "Sale Agreement"), by and among
the Partnership, Qualicorp Management, Inc., the managing general partner of
the Partnership, and Omega Healthcare Investors, Inc. ("Omega"). The Sale
Agreement calls for the sale to Omega of the Partnership's interests in its
facilities, and the personal property and intangible assets related to the
operation of these facilities.
The description of the Sale Agreement set forth herein does not purport to be
complete and is qualified in its entirely by the provisions of the Sale
Agreement, filed as an exhibit to the Company's Current Report on Form 8-K
dated February 18, 1997, and as Appendix A to the Partnership's Consent
Solicitation Statement filed March 12, 1997.
Under the Sale Agreement, the Partnership will receive total sales
consideration of $24,522,725, which will be reduced by accrued expenses of
approximately $493,705 for vacation pay, sick pay, taxes and trust fund
obligations as provided in the Sale Agreement, by approximately $3,539,444 of
closing costs, brokerage fees, third party settlements and other obligations,
and by approximately $3,398,905 for the payment of debt, resulting in estimated
net proceeds from the sale of $17,090,671. These estimated net proceeds will be
augmented by estimated current assets in excess of current liabilities of
approximately $5,081,610 which will increase the total amount estimated to be
available for distribution to approximately $22,173,281, which will be
distributed to the Partnership's limited partners (the "Limited Partners") in
three installments as follows:
1. First Installment. The Limited Partners will receive a check in the amount
of $1,003 per unit, payable within 30 business days of the closing and
surrender of Partnership certificates (an anticipated aggregate
distribution to all of the Limited Partners of $18,702,485);
2. Second Installment. A second distribution of approximately $134 per unit
is anticipated to be made within one year of the closing. This
distribution is primarily attributable to the collection of accounts
receivable in the period subsequent to the closing less the payment of
accounts payable and other liabilities (an anticipated aggregate
distribution to all of the Limited Partners of $2,503,337); and
3. Final Installments. A final distribution of up to $52 per unit is
anticipated to be made following the expiration of the Partnership's
representations and warranties to Omega and any additional period required
to finally resolve any claims for indemnification against the Partnership
brought prior to the termination of such period (an anticipated aggregate
distribution to all of the Limited Partners of $966,459).
The closing of the Sale Agreement is subject to a number of conditions, as
outlined in the Sale
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Agreement, including the approval of the Sale Agreement by the Limited Partners
and the closing of facility acquisition agreements between Omega and three
other affiliated partnerships. The approval of one of the partnerships has
already been obtained and the consents of the other partnerships, including the
Limited Partners, are being solicited.
Long Term Care Industry
The long term care industry is composed of many facilities offering services to
subacute, skilled, assisted living, and personal care residents. The
Partnership's nursing homes are considered to be in the skilled segment of the
industry, although several of its homes offer subacute services.
Historically, nursing homes have derived their revenues from Medicare, Medicaid
and private pay patients. In the past few years, the industry has seen an
increase in private insurance patients and to a greater extent, contractual
services from Health Maintenance Organizations (HMO's) and Preferred Provider
Organizations (PPO's).
The industry has always faced a challenge in staffing facilities, particularly
with regard to Registered Nurses, Licensed Practical Nurses and Certified Nurse
Aides. Depending upon the geographic area, the Partnership competes with
hotels, motels and restaurants for other employees, including dietary and
housekeeping staff. The Partnership owns nursing facilities in the States of
Illinois, Texas, and Alabama. Each state reimburses nursing facilities on a
prospective basis, although Alabama is the only state which bases reimbursement
on the nursing facilities' actual cost. Texas and Illinois use average cost
derived from all filed cost reports. Texas reimburses nursing facilities on a
patient specific need called Texas Index of Level of Effort (TILE). Illinois
pays nursing facilities based upon different cost parameters, including paying
additional incentives based on facility services provided. Approximately fifty
percent of the Partnership's operating costs consist of employee salaries and
benefits. In 1995 a federal law was passed which increased the minimum wage
level to $4.75 per hour in 1996 and to $5.15 per hour in 1997. Management of
the Partnership has already responded to these increases, and to a
corresponding "ripple effect" for wages of employees paid above the new minimum
wage, by increasing wages accordingly. To date, the State of Alabama has
increased its reimbursement rates to reimburse actual expenses due to the 1996
minimum wage increase to $4.75. The States of Illinois and Texas have recently
increased their reimbursement rates, but these increases were not related to,
and do not reimburse providers for, the 1996 minimum wage increase. None of
these states are committed to reimbursing nursing home expenses due to the 1997
increases in the minimum wage to $5.15 per hour, and there is considerable
doubt as to whether such increases will be forthcoming.
The federal government has been discussing changes in Medicare and Medicaid as
it looks for ways to downsize government. The Medicaid program could be
impacted through block grants or level funding programs which would cap federal
funding. If federal funding were capped, and state wished to retain the current
level of services, significant additional funding would be required,
particularly if the Omnibus Budget Reconciliation Act regulations were not
repealed. The Medicare program is being examined by the federal government for
possible changes, including the implementation of cost limits on ancillary
services (such as therapy programs, equipment and diagnostic services), capital
cost reductions, a freeze of the routine cost limits and perhaps a prospective
payment system. The potential impact of such changes, either alone or in
combination, cannot be determined at this time.
Information regarding industry segments is not applicable to the Partnership's
business.
Seasonality
The Partnership's revenue and operating income fluctuate from quarter to
quarter and tend to be higher in the first and second quarter of each fiscal
year. This seasonality is due primarily to the state Medicaid programs in which
the Partnership operates, rate increases and census cycles.
SERVICES PROVIDED
Routine Services
All of the nursing facilities operated by the Partnership are licensed as
skilled care facilities by the appropriate state regulatory agencies. Routine
services include the provision of skilled care services and assistance with
activities of daily living, depending upon the needs of each resident. Subacute
care may also be provided as specified by each resident's physician. Skilled
nursing care is rendered 24 hours per day by registered or licensed nurses and
certified nurses aides.
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Ancillary Services
The Partnership provides a variety of rehabilitative services at its facilities
for residents. These services include physical, speech, occupational, and
respiratory therapies. The Partnership continues to expand these services as
warranted by the needs of the residents and the requirements of third-party
payor programs.
ITEM 2. PROPERTIES
As of December 31, 1996, the following property was wholly owned by the
Partnership:
<TABLE>
<CAPTION>
Average Daily Census
Date of No. of --------------------
Property Acquisition Beds Description 1996 1995 1994 1993 1992
-------- ----------- ---- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edwardsville (East), IL. 3/1/88 120 Nursing home 110 110 112 113 115
</TABLE>
In addition, the Partnership has invested in joint ventures consisting of three
nursing homes with Medical Income Properties 2A Limited Partnership:
<TABLE>
<CAPTION>
Date of Owner- Average Daily Census
Acqui- No. of ship --------------------
Property sition Beds Description % 1996 1995 1994 1993 1992
-------- ------ ---- ----------- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Renaissance Place-Katy, TX. 5/1/88 130 Nursing home 50% 117 121 112 118 116
Renaissance Place-Humble, TX. 5/1/88 120 Nursing home 50% 115 116 115 113 113
Medical Park-Decatur, AL. 7/1/88 183 Nursing home 45.45% 174 170 175 178 179
</TABLE>
A description of the Partnership's purchase of the properties is disclosed in
Notes 1(f), 2, 3, 4, 5 and 12 of the Notes to Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
At December 31, 1996, there were no material pending legal actions against the
Partnership. As discussed in Note 9 to the Partnership's Audited Financial
Statements, the Partnership does have certain contingent liabilities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP
UNITS AND RELATED SECURITY HOLDER MATTERS
There is no established public trading market for the Partnership Units. There
were 1,009 limited partners as of February 27, 1997. Distributions paid per
limited partner unit for each quarter for the last five years of the
Partnership are incorporated by reference from Item
6 below.
3
<PAGE> 6
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the period January 1, 1992 to December 31, 1996 is
presented on a consolidation basis below:
(000's omitted except for per share data and distribution)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Total Revenue $ 3,448 3,433 3,059 2,989 2,834
Operating Income (Loss) $ (222) (216) 36 264 419
Net Income $ 582 331 459 615 542
Per Share Data:
Net Income per
Limited Partner Unit $ 49.62 28.23 39.14 52.44 46.24
Financial Condition:
Total Assets $ 11,087 11,206 10,954 10,597 10,510
Notes Payable $ 704 763 816 879 929
Partner's Capital $ 8,949 8,836 8,974 8,954 8,691
Distributions per Limited
Partner Unit:
First Quarter $ 10.00 10.00 7.50 7.50 5.00
Second Quarter $ 10.00 10.00 10.00 7.50 6.25
Third Quarter $ 10.00 10.00 10.00 7.50 6.25
Fourth Quarter $ 10.00 10.00 10.00 7.50 7.50
</TABLE>
Quarterly Financial data for the period January 1, 1994 to December 31, 1996
(000's omitted):
<TABLE>
<CAPTION>
1996
---------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Total Revenue $ 909 $ 880 $ 824 $ 835
Income (Loss)
from Operations (6) (6) (29) (181)
Net Income 177 151 216 38
<CAPTION>
1995
---------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Total Revenue $ 883 $ 828 $ 821 $ 901
Income (Loss)
from Operations (12) (82) (82) (40)
Net Income 138 38 31 124
<CAPTION>
1994
---------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Total Revenue $ 717 $ 745 $ 753 $ 844
Income (Loss)
from Operations (23) 27 43 (11)
Net Income (Loss) 171 180 200 (92)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Reserves
Cash and equivalents increased during the year to $269,249, an increase of
$227,886 over 1995. This improvement was due primarily to improvement in the
payments being received from the State of Illinois for its Medicaid program.
Medicare receivables, however, increased during the year due to increased
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intermediary reviews of specific ancillary charges.
Distributions from joint ventures increased during the year to $876,302 while
total distributions during 1995 were $330,905. The Partnership spent $12,408 on
improvements and equipment at its Edwardsville facility during 1996 and expects
similar amounts to be spent in 1997.
In 1996, the Partnership paid distributions to its limited partners totaling
$40.00 per unit. This distribution equaled a 4% return on the initial
investment of $1,000 per unit. Although the Partnership expects to continue to
make distributions to its limited partners based on the cash flow generated
from operations after considering cash required for debt obligations, necessary
improvements to the property and working capital reserves, no assurance can be
given that distributions will be made in the future.
Results of Operations
Fiscal Year 1996 Compared to 1995
Net income for 1996 was $581,970, as compared to $331,053 for 1994. The
increase in earnings was due to an increase in the Partnership's share of joint
venture income, which is derived from the results of operations of the Texas
nursing facilities (the "Texas Joint Venture") and the Medical Park nursing
facility in Alabama (the "Alabama Joint Venture") (together, the Alabama and
Texas Joint Ventures are hereinafter referred to as the "Joint Ventures"). The
operations of the wholly owned Edwardsville Care Center East facility improved
during 1996 over 1995 due to better expense control on slightly higher revenue,
even though ancillary volume was down in 1996 from 1995.
Professional care of patients totaled $1,888,947 in 1996 versus $1,981,961 in
1995 due to lower salary and wages paid as well as lower ancillary contract
service fees. The ancillary volume was impacted during the year due to fewer
Medicare A patients being served in the facility. General and Administrative
costs were $136,455 higher in 1996 than 1995 due to higher management fees,
property management fees paid to Qualicorp, Inc., higher salaries and wages,
auditing, legal expense and cost reimbursement. Employee health and welfare
expense declined between years due to lower incentive compensation, employee
physical examination expense and tax rates.
Other income (expense) improved from 1995 to 1996 due to significantly improved
operating income of the Joint Venture partners and lower interest expense
incurred on debt obligations. The Joint Venture operating income is derived
from three nursing home properties. The Texas Joint Venture Humble facility's
net income increased from $137,279 to $461,265 due to increased room and board
rates and ancillary services. Revenue increased $751,219 between years while
expenses increased only $427,233, $313,672 of which was due to ancillary
contract expense. The Texas Joint Venture Katy property profit increased to
$653,851, $30,727 over 1995 levels. Net Income for the Medical Park nursing
home improved to $816,707 in 1996 from $714,840 in 1995.
Fiscal Year 1995 Compared to 1994
Net income for 1995 was $331,053, compared to $459,086 for 1994. The decrease
in earnings was due to an operating loss of $215,675 at its wholly owned
Illinois nursing facility. The facility had an operating income in the prior
year of $36,082. During the year, net revenue from resident service increased
$375,000. This increase was due in part to a higher level of care provided to
residents through an expanded therapy program. In addition, the nursing home
received a Medicaid rate increase in August 1995 of $4.11 per patient day.
Professional care of residents increased $600,711 over the 1994 level due to
higher labor costs of $162,000 and therapy services expenses of $484,000.
Household and Plant expenses were $30,066 over 1994 due to higher maintenance,
utilities and supply costs. General and Administrative costs decreased between
years $19,087 due to lower insurance costs, partially offset by higher salary
costs and fees.
Other income (expense) was affected by the need to borrow operating funds. Net
interest expense increased $97,000 over the previous year. The Partnership's
share of joint venture income rose between years by $231,000 due to improved
earnings at the Renaissance Place-Katy Nursing Home and Medical Park nursing
home. The operating results at both facilities improved over the prior year due
to increased Medicare utilization and expanded therapy programs. The
Renaissance Place-Humble facility operating net income was $122,259 lower than
1994 due to higher salary costs, therapy costs, and maintenance expenses.
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Fiscal Year 1994 Compared to 1993
Net income for the year was $459,086, compared to $614,975 for 1993. The
decrease in earnings was due to a decrease in the Illinois Medicaid rate of
$5.52 per patient per day in September 1993 for Edwardsville Care Center East
along with higher labor and increased therapy services cost. In addition,
general and administrative costs increased $81,814. This increase was due to
increased workers compensation insurance charges which rose by almost $100,000
over the previous year.
Other income (expense) was $423,004. This represented an increase of $71,586
over the previous year, even though the Partnership's share of joint venture
income declined by $78,041 between years. This decline in joint venture
earnings was due in part to increased cost in patient care for salaries and
wages and higher ancillary service costs in the Texas facilities. Interest
income increased due to higher interest rates. Provider fees decreased due to
changes made in the Illinois program.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary date required by Regulation S-X are
included in this Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes of auditors for the Partnership during fiscal years 1996
and 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. QualiCorp Management,
Inc. (QMI), a Delaware corporation, is the Managing General Partner of the
Partnership. The directors and executive officers of QMI as of December 31,
1996 are listed below. Directors serve for one year or until the next annual
meeting of stockholders of QMI or until their successors are elected and
qualified. QMI is a wholly-owned subsidiary of QualiCorp, Inc., a Louisiana
corporation. The directors and executive officers of QualiCorp, Inc. are also
listed below. The relationship of the Managing General Partner to its
Affiliates is described under the caption "Conflicts of Interest" on pages 38
through 42 of the Prospectus, which pages are specifically incorporated by
reference herein.
The directors and executive officers of QMI and QualiCorp, Inc. are as follows:
<TABLE>
<CAPTION>
Name Age Positions and Recent Principal Occupations
- ---- --- ------------------------------------------
<S> <C> <C>
John M. DeBlois 60 Chairman of the Board since 1981. Chairman of the Board of
Qualicare, Inc., a hospital management company, from the mid
1970's to 1983.
John H. Stoddard 54 President and Chief Financial Officer since July 1, 1988. Senior
Vice President of Safecare Health Services, Inc., a health care
management company, from September 1, 1985 to March 1988.
From May 1983 to August 1985, Treasurer, Continental Health
Services, a health care management company. Prior to May 1983,
was Vice President - Finance with Qualicare, Inc.
Wanda J. Honea 39 Vice President - Investor Services from May 1990. Office
relocation consultant from October 1989 through April 1990. From
October 1988 to October 1990, Office Administrator for Hunton &
Williams, a law firm. Prior to 1988, administrative assistant at Hansell
& Post.
</TABLE>
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Mr. DeBlois and Mr. Stoddard are Directors of QMI and Qualicorp, Inc. There are
no family relationships among any of the above officers and/or directors.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no officers or directors. No director or officer of the
Managing General Partner received any remuneration from the Partnership for the
three years ended December 31, 1996. The Partnership paid to Qualicorp, Inc.
the parent of QMI the Managing General Partner $84,896 as reimbursement for
administrative expenses (primarily salaries) incurred during the year.
Qualicorp, Inc. also charged the Partnership $132,974 for property management
fees in 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
No person or group is known by the Partnership to own beneficially more than 5%
of the outstanding units of the Partnership.
No executive officers or directors of QMI owned any units in the Partnership at
December 31, 1996. Qualicorp, Inc., parent of QMI, the Partnership's Managing
General Partner, held 44 Units in the Partnership at December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the five years ended December 31, 1996, Qualicorp, Inc., the parent of QMI,
charged the Partnership for administrative services $84,896, $80,278, $86,348,
$80,619, and $67,252, respectively. Qualicorp, Inc. also charged the
Partnership $132,974 for property management fees in 1996.
Under the Partnership Agreement, the General Partners are entitled to
participate in distributions of the Partnership's Cash Flow as described under
the caption "Management Compensation" at pages 32 through 36 of the Prospectus.
Cash distributions of $32,838, $32,839, $30,786, $24,627, and $20,524, were
made to the General Partners during 1996, 1995, 1994, 1993, and 1992,
respectively. The General Partners also share in the Partnership's net profits
and net losses.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial statements and supplementary information appears in a separate
section of this Form 10-K commencing on pages referenced below:
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report F-1
Financial Statements
Balance Sheets F-2
Statements of Operations F-3
Statements of Partners' Capital F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-7
Information Accompanying the Basic Financial Statements
Independent Auditor's Report on Additional Information F-19
Schedule VIII - Valuation and Qualifying Accounts and Reserves
for Allowances for Doubtful Accounts F-20
</TABLE>
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<TABLE>
<S> <C>
Schedule X - Consolidated Supplementary Income
Statement Information F-21
Schedule XI - Real Estate and Accumulated Depreciation F-22
</TABLE>
All schedules other than those indicated have been omitted as the required
information is inapplicable or the information is presented in the financial
statements or related notes.
THE TEXAS JOINT VENTURE
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditor's Report F-23
Financial Statements
Balance Sheets F-24
Statements of Operations F-25
Statements of Partners' Capital F-26
Statements of Cash Flows F-27
Notes to Financial Statements F-29
Information Accompanying the Basic Financial Statements
Independent Auditor's Report on Additional Information F-38
Schedule VIII - Valuation and Qualifying Accounts and Reserves
for Allowances for Doubtful Accounts F-39
Schedule X - Consolidated Supplementary Income Statement
Information F-40
Schedule XI - Real Estate and Accumulated Depreciation F-41
</TABLE>
All schedules other than those indicated have been omitted as the required
information is inapplicable or the information is presented in the financial
statements or related notes.
THE ALABAMA JOINT VENTURE
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditor's Report F-42
Financial Statements
Balance Sheets F-43
Statements of Operations F-44
Statements of Partners' Capital F-45
Statements of Cash Flows F-46
Notes to Financial Statements F-48
Information Accompanying the Basic Financial Statements
Independent Auditor's Report on Additional Information F-57
Schedule VIII - Valuation and Qualifying Accounts and Reserves
for Allowances for Doubtful Accounts F-58
Schedule X - Consolidated Supplementary Income Statement
Information F-59
Schedule XI - Real Estate and Accumulated Depreciation F-60
</TABLE>
All schedules other than those indicated have been omitted as the required
information is inapplicable or the information is presented in the financial
statements or related notes.
2. Exhibits
Exhibits listed below which have been filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the
Securities Exchange Act of 1934, and which were filed as noted below, are
hereby incorporated by reference and made a part of this report with the
same effect as if filed herewith.
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2. Purchase and Sale Agreement (the "Sale Agreement") dated February 3,
1997 (filed as an exhibit to the company's Form 8-K filed February
18, 1997, and as an appendix to the Partnership's Consent
Solicitation Statement dated March 12, 1997).
3-A. The Prospectus of the Partnership dated October 22, 1986, as amended
October 23, 1986, October 29, 1986 and supplemented on February 26,
1987 and filed pursuant to Rule 424(b) is hereby incorporated herein
by reference.
3-B. Amended and restated Agreement of Limited Partnership set forth as
Exhibit A to the Prospectus, incorporated herein by reference.
3-C. Consent Solicitation Statement dated March 12, 1997 and filed
pursuant to Rule 14A is incorporated herein by reference.
(b) No report on Form 8-K was filed during the fourth quarter of the fiscal
year ended December 31, 1996. A report on Form 8-K was filed on February
18, 1997 pertaining to Disposition of Partnership Assets.
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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.
MEDICAL INCOME PROPERTIES 2B
LIMITED PARTNERSHIP
QUALICORP MANAGEMENT, INC.
Managing General Partner
By: /s/ John H. Stoddard Date: March 21, 1997
-----------------------------------
John H. Stoddard
President, Director, Chief Financial
Officer and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Position Date
---- -------- ----
<S> <C> <C>
/s/ John M. DeBlois Chairman of the Board March 21, 1997
- -----------------------------
John M. DeBlois
/s/ John H. Stoddard President, Director, March 21, 1997
- ----------------------------- Chief Financial Officer
John H. Stoddard and Principal Accounting
Officer
</TABLE>
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EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule (for SEC use only)
<PAGE> 14
[SELF & MAPLES, P.A. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Medical Income Properties 2B Limited Partnership
We have audited the balance sheets of Medical Income Properties 2B Limited
Partnership as of December 31, 1996 and 1995 and the related statements of
operations, partners' capital and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Income Properties 2B
Limited Partnership as of December 31, 1996 and 1995 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Self & Maples, P.A.
Oneonta, Alabama
January 24, 1997, except for Note 12, as to which the date is
February 3, 1997
F-1
<PAGE> 15
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 269,249 $ 41,363
------------ ------------
Patient accounts receivable, net of allowance
for doubtful accounts of $102,349
in 1996 and $54,188 in 1995 616,404 780,238
Estimated third-party payor settlements 203,628 316,962
Prepaid expense and other assets 54,122 42,144
------------ ------------
Total current assets 1,143,403 1,180,707
Investment in joint ventures 7,087,148 7,034,698
Property and equipment, net of
accumulated depreciation 2,855,196 2,988,787
Deferred financing costs, net of
accumulated amortization of
$1,743 in 1996 and $1,525 in 1995 1,744 1,962
------------ ------------
Total assets $ 11,087,491 $ 11,206,154
============ ============
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current maturities of long-term debt $ 63,388 $ 57,447
Accounts payable 334,901 235,152
Accrued payroll and payroll taxes 73,433 47,516
Accrued vacation 32,722 31,082
Accrued insurance 10,657 28,384
Accrued real estate taxes 75,096 76,143
Accrued management fees 13,906 13,371
Patient deposits and trust liabilities 48,244 37,010
Other accrued expenses 4,949 387
Due to affiliates 840,835 1,137,913
------------ ------------
Total current liabilities 1,498,131 1,664,405
Long-term debt, net of current maturities 640,309 705,550
------------ ------------
Total liabilities 2,138,440 2,369,955
------------ ------------
Partners' capital (deficit)
Limited partners 8,993,158 8,888,206
General partners (44,107) (52,007)
------------ ------------
Total partners' capital 8,949,051 8,836,199
------------ ------------
Total liabilities and partners' capital $ 11,087,491 $ 11,206,154
============ ============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 16
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Net patient service revenue $ 3,443,725 $ 3,428,541 $ 3,053,550
Other revenue 4,345 4,147 5,791
------------ ------------ ------------
Total revenue 3,448,070 3,432,688 3,059,341
------------ ------------ ------------
Operating expenses
Professional care of patients 1,888,947 1,981,961 1,381,250
Dietary 276,675 265,966 263,409
Household and plant 323,317 342,433 312,367
General and administrative 853,203 716,748 735,835
Employee health and welfare 182,010 190,721 180,033
Depreciation and amortization 146,217 150,534 150,365
------------ ------------ ------------
Total operating expenses 3,670,369 3,648,363 3,023,259
------------ ------------ ------------
Operating income (loss) (222,299) (215,675) 36,082
------------ ------------ ------------
Other income (expenses)
Interest income -- -- 55,313
Interest expense (58,603) (92,668) (51,027)
Provider fees (65,880) (65,700) (55,397)
Partnership share of joint
venture income 928,752 705,096 474,115
------------ ------------ ------------
Total other income
(expenses) 804,269 546,728 423,004
------------ ------------ ------------
Net income $ 581,970 $ 331,053 $ 459,086
============ ============ ============
Net income attributable
to limited partners (93%) $ 541,232 $ 307,879 $ 426,950
Net income attributable
to general partners (7%) 40,738 23,174 32,136
------------ ------------ ------------
$ 581,970 $ 331,053 $ 459,086
============ ============ ============
Net income per limited
partnership unit outstanding $ 49.62 $ 28.23 $ 39.14
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 17
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Partners' capital
(deficit) at
December 31, 1993 $10,907 $ 8,998,669 $(43,692) $ 8,954,977
Distributions to
partners ($37.50 per
limited partnership
unit outstanding) -- (409,011) (30,786) (439,797)
Net income -- 426,950 32,136 459,086
------- ----------- -------- -----------
Partners' capital
(deficit) at
December 31, 1994 10,907 9,016,608 (42,342) 8,974,266
Distributions to
partners ($40.00 per
limited partnership
unit outstanding) -- (436,281) (32,839) (469,120)
Net income -- 307,879 23,174 331,053
------- ----------- -------- -----------
Partners' capital
(deficit) at
December 31, 1995 10,907 8,888,206 (52,007) 8,836,199
Distributions to
partners ($40.00 per
limited parnership
unit outstanding) -- (436,280) (32,838) (469,118)
Net income -- 541,232 40,738 581,970
------- ----------- -------- -----------
Partners' capital
(deficit) at
December 31, 1996 $10,907 $ 8,993,158 $(44,107) $ 8,949,051
======= =========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 18
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patient care $ 3,708,915 $ 3,186,524 $ 2,762,115
Interest and dividends received -- -- 55,313
Other operating receipts 4,345 4,147 5,791
Cash paid to suppliers and
employees (3,399,289) (3,516,545) (2,670,505)
Interest paid (58,603) (92,668) (51,027)
Provider fees (65,880) (65,700) (55,397)
------------ ------------ ------------
Net cash provided (used) by operations 189,488 (484,242) 46,290
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (12,408) (52,424) (64,813)
Distributions from joint
ventures 876,302 330,905 276,354
------------ ------------ ------------
Net cash provided (used) by
investing activities 863,894 278,481 211,541
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on long-term
obligations (59,300) (53,492) (63,206)
Distributions to partners (469,118) (469,120) (439,797)
Net related party transactions (297,078) 644,286 110,592
------------ ------------ ------------
Net cash provided (used) by financing
activities (825,496) 121,674 (392,411)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 227,886 (84,087) (134,580)
Cash and cash equivalents, beginning
of year 41,363 125,450 260,030
------------ ------------ ------------
Cash and cash equivalents, end of year $ 269,249 $ 41,363 $ 125,450
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 19
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 581,970 $ 331,053 $ 459,086
------------ ------------ ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 146,217 150,534 150,365
Partnership share of joint
venture income (928,752) (705,096) (474,115)
Provision for losses on accounts
receivable 15,177 7,625 16,445
(Increase) decrease in:
Patient accounts receivable, net 148,657 130,735 (321,421)
Estimated third-party payor
settlements 113,334 (258,259) (58,703)
Prepaid expenses and other assets (11,978) 23,537 (1,779)
Increase (decrease) in:
Accounts payable 99,749 26,905 116,354
Accrued expenses 13,880 (74,560) 90,004
Estimated third-party payor
settlements -- (122,118) 72,244
Other liabilities 11,234 5,402 (2,190)
------------ ------------ ------------
Total adjustments (392,482) (815,295) (412,796)
------------ ------------ ------------
Net cash provided (used) by
operating activities $ 189,488 $ (484,242) $ 46,290
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 20
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Medical Income Properties 2B Limited Partnership (the
Partnership) is a Delaware limited partnership formed on April
29, 1987 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 on July 16,
1987. The offering closed on January 31, 1988. For the period
April 29, 1987 (inception) to April 28, 1988, the Partnership was
in the development stage. On March 1, 1988, the Partnership began
acquiring property.
The general partners are QualiCorp Management, Inc. (a
wholly-owned subsidiary of QualiCorp, Inc.) and QualiCorp
Capital, Inc.
(b) Allocation of Net Profits and Net Losses
Net profits and net losses shall be determined and allocated as
of December 31 of each year, as follows:
- Net profits (losses) (exclusive of net profits (losses)
attributable to the sale or disposition of Partnership
properties) are allocated 93% to the limited partners and 7%
to the general partners.
- Net profits attributable to the sale or disposition of a
Partnership property shall be allocated as follows:
- First, to limited partners with negative balances in
their capital accounts in proportion to such negative
balances, to the extent of the total of such negative
balances;
- Second, 1% to the general partners and 99% to the
limited partners until the capital account of each
limited partner is equal to his capital investment; and
F-7
<PAGE> 21
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- 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 the number
of units outstanding of 10,907 in 1996, 1995, and 1994.
(e) Patient Service Revenue
Patient service revenue is recorded at the nursing homes'
established rates with contractual adjustments ($1,888,312 in
1996, $1,832,743 in 1995, and $1,014,629 in 1994), provision for
uncollectible accounts, (bad debt expense of $ 15,177 in 1996,
$7,625 in 1995, and $16,445 in 1994) and other discounts deducted
to arrive at net patient service revenue.
Net patient revenue includes amounts estimated by management to
be reimbursable by Medicare, Medicaid and other third-party
programs under the provisions of cost and prospective payment
reimbursement formulas in effect. Amounts received under these
programs are generally less than the established billing rates of
the nursing homes and the difference is reported as a contractual
adjustment and deducted from gross revenue.
The nursing homes recognize currently estimated final settlements
due from or to third party programs. Final determination of
amounts earned is subject to audit by the intermediaries.
Differences between estimated provisions and final settlement
will be reflected as charges or credits to operating revenues in
the year the cost reports are finalized.
F-8
<PAGE> 22
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(f) Property and Equipment
Property and equipment is 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.
(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. The
amount in excess of insured limits was approximately $1,360,579
(inclusive of unconsolidated joint ventures) at December 31,
1996. A portion of commingled funds discussed in Note 6., may be
at risk, but the amount in excess of FDIC limits related to the
Partnership is not determinable.
(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 March 1, 1988, the Partnership acquired Edwardsville - East Nursing
Home, located in Illinois, for $3,750,000 plus capitalized acquisition
costs and fees of $276,595. The Partnership assumed $1,133,690 of debt
with the purchase.
F-9
<PAGE> 23
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The acquisition has 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.
Note 3. INVESTMENTS IN JOINT VENTURES
The Partnership has invested in two joint ventures with Medical Income
Properties 2A Limited Partnership (MIP2A). These joint ventures are
accounted for under the equity method.
The Texas Joint Venture
On May 1, 1988, the Partnership purchased 50% of Renaissance Place -
Katy Nursing Home located in Texas for $2,736,250 plus capitalized
acquisition costs and fees of $254,645. The seller took back a note
for $300,000 ($150,000 was the Partnership's share) due May 1, 1993
that has subsequently been paid.
On May 1, 1988, 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 Alabama Joint Venture
On July 1, 1988, the Partnership purchased 45.45% of Medical Park
Nursing Home located in Alabama for $2,317,950 plus capitalized
acquisition costs and fees of $172,379.
The condensed balance sheet information for the investments in joint
ventures as of December 31, 1996 and 1995 and operating statement
information for each of the years in the three-year period ending
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Katy 1996 1995
---- ---- ----
<S> <C> <C>
Current assets $ 2,501,874 $ 1,684,094
Long-term assets 4,771,630 5,048,138
----------- -----------
Total assets $ 7,273,504 $ 6,732,232
=========== ===========
Current liabilities 860,008 684,328
Long-term liabilities - -
Equity 6,413,496 6,047,904
----------- -----------
Total liabilities
and equity $ 7,273,504 $ 6,732,232
=========== ===========
</TABLE>
F-10
<PAGE> 24
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C>
Katy (con't.)
Partnership's investment
at December 31,
1996 and 1995 $ 3,206,748 $ 3,023,952
=========== ===========
1996 1995 1994
---- ---- ----
Revenues $ 5,039,616 $ 4,985,129 $ 3,700,538
Expenses 4,385,765 4,362,005 3,505,169
----------- ----------- -----------
Net income $ 653,851 $ 623,124 $ 195,369
=========== =========== ===========
Humble 1996 1995
------ ---- ----
Current assets $ 1,498,372 $ 1,140,926
Long-term assets 3,377,314 3,651,762
----------- -----------
Total assets $ 4,875,686 $ 4,792,688
=========== ===========
Current liabilities 677,478 703,933
Long-term liabilities 631,250 691,850
Equity 3,566,958 3,396,905
----------- -----------
Total liabilities
and equity $ 4,875,686 $ 4,792,688
=========== ===========
Partnership's investment
at December 31,
1996 and 1995 $ 1,783,479 $ 1,698,453
=========== ===========
1996 1995 1994
---- ---- ----
Revenues $ 4,415,307 $ 3,664,088 $ 3,373,417
Expenses 3,954,042 3,526,809 3,113,890
----------- ----------- -----------
Net income $ 461,265 $ 137,279 $ 259,527
=========== =========== ===========
Medical Park 1996 1995
------------ ---- ----
Current assets $ 1,699,553 $ 2,370,621
Long-term assets 5,369,994 5,308,640
----------- -----------
Total assets $ 7,069,547 $ 7,679,261
=========== ===========
Current liabilities 743,586 713,232
Long-term liabilities 1,704,860 1,868,527
Equity 4,621,101 5,097,502
----------- -----------
Total liabilities
and equity $ 7,069,547 $ 7,679,261
=========== ===========
</TABLE>
F-11
<PAGE> 25
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C>
Medical Park (con't.)
Partnership's investment
at December 31,
1996 and 1995 $ 2,100,682 $ 2,317,207
=========== ===========
1996 1995 1994
---- ---- ----
Revenues $ 6,396,385 $ 5,907,763 $ 5,137,870
Expenses 5,579,678 5,192,923 4,595,148
----------- ----------- -----------
Net income $ 816,707 $ 714,840 $ 542,722
=========== =========== ===========
</TABLE>
See Note 9 for contingency.
Note 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 90,000 $ 90,000
Buildings and improvements 3,812,869 3,817,099
Furniture and equipment 302,317 285,680
---------- ---------
Total 4,205,186 4,192,779
Accumulated depreciation
and amortization (1,349,990) (1,203,992)
----------- ----------
Net property and equipment $ 2,855,196 $ 2,988,787
=========== ===========
</TABLE>
Note 5. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Industrial Revenue Bonds payable at a variable rate of interest
(7.755% at December 31, 1996 and 8.225% at December 31, 1995)
with monthly principal and interest payments of $9,645 through
April 1, 2005. The interest rate is adjusted every May 1 and
November 1, secured by
real estate. $ 703,697 $ 762,997
Less amounts due in one year
or less 63,388 57,447
---------- ---------
$ 640,309 $ 705,550
========== ==========
</TABLE>
F-12
<PAGE> 26
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The aggregate annual maturities of long-term debt for the succeeding
five fiscal years are as follows:
<TABLE>
<S> <C>
1997 $ 63,388
1998 68,482
1999 73,986
2000 79,932
2001 86,356
Thereafter 331,553
----------
$ 703,697
==========
</TABLE>
Note 6. RELATED PARTY TRANSACTIONS
QualiCorp, Inc. charged the Partnership $84,896 in 1996, $80,278 in
1995, and $86,348 in 1994 for administrative expenses (primarily
salaries). QualiCorp, Inc. also charged the Partnership $132,974 for
property management fees in 1996.
Details of the amounts due to affiliates at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due to QualiCorp, Inc. $ 156,787 $ 48,917
Due to The Texas Joint Venture -
Katy 184,075 184,075
Humble 26,556 26,556
Due to The Alabama Joint Venture -
Medical Park 473,417 382,517
Due to affiliates of the general
partner - 495,848
----------- -----------
Due to affiliates $ 840,835 $ 1,137,913
=========== ===========
</TABLE>
During the year ended December 31, 1995, the General Partners
established a pooled investment account in which the General Partners
and the partnerships in which they act as general partners could
participate. This account was used by those entities to invest
overnight cash balances, and borrow funds when an entity needed
temporary access to funds. Each entity received its share of interest
earned monthly, and was charged interest on any funds borrowed.
The Articles of Limited Partnership of the partnerships involved state
that no General Partner shall have the authority to cause those
partnerships to make loans other than in connection with the purchase,
sale or disposition of partnership property. The Articles of Limited
Partnership of those partnerships also state that the
F-13
<PAGE> 27
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
partnerships' funds may not be commingled with any other entities'
funds except as necessary for the operation of those partnerships.
At December 31, 1995, the Partnership had borrowed $495,848 from the
other entities, and had paid interest of $13,116 from this
arrangement.
See Footnote 12 for sale of affiliated assets.
Note 7. INCOME TAXES
No provision for income taxes is made in the financial statements
since taxable income is reported in the income tax returns of 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 expenses items. The following is a
reconciliation of reported net income and Federal taxable income.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income as reported $ 581,970 $ 331,053 $ 459,086
Adjustments:
Depreciation differences 17,720 41,967 59,055
Bad debt reserve 33,238 46,191 37,093
Vacation accrual 14,263 15,019 12,775
Insurance deductible - (51,636) -
Nondeductible travel
and entertainment 14,080 16,165 7,134
--------- --------- ---------
Federal taxable income $ 661,271 $ 398,759 $ 575,143
========= ========= =========
Federal taxable income
per limited partnership
unit outstanding $ 56.38 $ 34.00 $ 49.04
========= ========= =========
</TABLE>
Note 8. CONTRACTUAL AGREEMENTS
In 1988, the Partnership entered into a management agreement whereby
the Manager is required to perform certain services. The agreement had
an initial five-year term with one additional five-year option that
was exercised in 1993. Fees were based on 6% of gross collected
operating revenues through June 30, 1992. Thereafter they were based
on 5% of gross collected operating revenues, but not less than
$140,000 in a calendar year and are increased by an inflation factor
after 1992. The Manager has a right of first refusal to match a bona
fide offer made by an outside party to purchase or lease the nursing
home. The management agreement, as amended, contained a termination
clause.
F-14
<PAGE> 28
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The management agreement was amended on January 1, 1995. The amendment
calls for a fixed monthly management fee of $13,371 with a cost of
living factor equal to the greater of 4% per annum or the increase in
the Consumer Price Index or such other measure mutually agreeable to
the parties. The agreement expires December 31, 1998. The termination
on sale clause was amended to base the fee on a sum equal to the
discounted present value of the monthly management fee as of the date
of termination of the agreement times the number of months remaining
in the management agreement discounted to the date of termination at
an annual interest rate of ten percent (10%). In addition, the parties
agreed to terminate the Manager's right of first refusal.
Commencing January 1, 1996, the Management Agreement was extended for
a period of up to a maximum of eighteen months by one month for every
month after January 1, 1996 in which the parties are engaged in the
process of attempting to sell the Facilities. In the event of a sale
of the Facilities, the termination on sale fee described above would
be discounted to the date of termination at an annual rate of ten
percent (10%) and then further discounted by a factor of thirty-three
and one-third percent (33 1/3%).
Management fees charged to the partnership were $166,875 in 1996,
$160,456 in 1995, and $154,285 in 1994.
Note 9. 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.
The real estate owned by The Texas Joint Venture and The Alabama Joint
Venture is mortgaged as security on debt incurred by the Partnership's
joint venture partner Medical Income Properties 2A Limited partnership
(MIP2A). This debt is also secured by all other real estate owned by
MIP2A. The total outstanding debt secured by all these properties is
$3,805,555.
F-15
<PAGE> 29
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 10. CONCENTRATIONS IN REVENUE SOURCES
The Partnership provides patient care services under various third
party agreements. The principal sources of revenue under these
contracts are derived primarily through the Medicaid and Medicare
programs, as well as contracts with private pay patients who do not
qualify for assistance from the other programs. The percentage of the
Joint Venture's income from each of these sources for the years ended
December 31, 1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Private pay patients 12.05% 11.34% 11.71%
Medicaid 48.03% 47.47% 62.82%
Medicare 39.92% 41.19% 25.47%
------- ------- -------
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 methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Long-term Debt: For variable rate notes, fair values are based on
carrying values.
The other financial instruments of the Company are short-term
assets and liabilities whose carrying amounts reported in the
F-16
<PAGE> 30
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
balance sheet approximate fair value. These items include cash,
accounts receivable and accounts payable.
Note 12. SUBSEQUENT EVENT
On February 3, 1997, Medical Income Properties 2B Limited Partnership
entered into a purchase agreement with Omega HealthCare Investors,
Inc. to sell all of the real and personal property of the nursing home
facilities.
The purchase price is allocated among the facilities as follows:
<TABLE>
<S> <C>
Edwardsville - East Nursing Home
(120 beds) $ 2,383,000
Medical Park Convalescent Center
(183 beds) - 45.45% ownership 4,522,275
Renaissance Place - Katy (130 beds) -
50% ownership 2,984,500
Renaissance Place - Humble (120 beds) -
50% ownership 2,487,500
-----------
Proceeds from sale $12,377,275
===========
</TABLE>
Proceeds from the sale will be reduced by expenses incurred as a
result of the sale, cash offsets for liabilities assumed by the buyer
and existing indebtedness. These payments should approximate
$3,965,000.
The closing could take place as early as March 31, 1997 and can be
extended by the Partnership until April 30, 1997. If conditions
precedent to either party's obligation to close are not satisfied or
waived, the closing can be extended to a date no later than July 31,
1997. Approximately $395,450 of these proceeds will be set aside in a
joint signature account for the purpose of securing all of the
seller's obligations under the purchase agreement. These funds will be
available to the Partnership in the event that these obligations do
not exceed the funds held in escrow.
In addition, a separate amount of proceeds of approximately $500,000
will also be held in reserve by the Partnership pending final
settlement of third-party cost reports and other contingencies.
This agreement can be terminated by mutual consent of the parties and
other conditions precedent.
In conjunction with the above sale, Omega HealthCare Investors, Inc.
has agreed to a similar purchase of assets from RWB Medical Properties
Limited Partnership IV, of which an officer of QualiCorp, Inc. owns
either directly or indirectly a 21.53% interest. This
F-17
<PAGE> 31
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
sale relates to a 131 bed nursing home in Patterson, Louisiana and the
purchase price for the assets is $5,350,000.
F-18
<PAGE> 32
[SELF & MAPLES, P.A. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
ON ADDITIONAL INFORMATION
To the Partners
Medical Income Properties 2B Limited Partnership
Our report on our audit of the basic financial statements of Medical Income
Properties 2B Limited Partnership for 1996 appears on page 1. That audit was
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, 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 audit of the basic financial statements, and in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Self & Maples, P.A.
Oneonta, Alabama
January 24, 1997, except for Note 12, as to which the date is
February 3, 1997
F-19
<PAGE> 33
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Balance at beginning of year $ 54,188 $35,327 $ 25,015
Charged to patient service
revenues 32,984 11,236 (6,133)
Write-offs 15,177 7,625 16,445
-------- ------- --------
Balance at end of year $102,349 $54,188 $ 35,327
======== ======= ========
</TABLE>
F-20
<PAGE> 34
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
SCHEDULE X
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- ---------- --------
<S> <C> <C> <C>
Professional care of patients
Nursing salaries and wages $986,150 $1,016,764 $854,741
Ancillary service expense 678,357 713,913 230,229
Supplies 89,576 108,192 113,202
Temporary labor 939 8,423 40,476
General and administrative
Salaries and wages 93,837 87,897 77,150
Accounting and auditing 46,552 42,807 42,463
Insurance 150,623 161,912 198,425
Property tax 73,649 76,239 76,446
Management fees 166,875 160,456 154,285
Property management fees 132,974 -- --
Cost reimbursement 84,896 80,278 86,348
Dietary
Food cost 134,948 128,930 133,949
Household and plant
Repairs and maintenance 10,212 23,852 12,053
Utilities 126,040 120,078 115,921
Depreciation $145,999 $ 150,316 $150,147
======== ========== ========
</TABLE>
F-21
<PAGE> 35
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED
TO PARTNERSHIP(A) SUBSEQUENT TO
ACQUISITION
BUILDING AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST
----------- ------------ ------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
EDWARDSVILLE - EAST $703,697 $90,000 $3,660,000 $178,591 $276,595
======== ========================= ========================
<CAPTION>
LIFE ON WHICH
GROSS AMOUNT AT WHICH CARRIED DEPRECIATION
AS OF DECEMBER 31, 1996(B) IN LATEST
STATEMENT OF
BUILDING AND ACCUMULATED DATE OF DATE OPERATION IS
LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
--------------------------------------- ------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EDWARDSVILLE - EAST $90,000 $4,115,186 $4,205,186 $1,349,990 1987 05/01/88 5 TO 30 YEARS
=========================================== ==========
</TABLE>
(A) The initial cost to the Partnership represents the original purchase
price of the properties.
(B) The aggregate cost of real estate owned at December 31, 1996 for
Federal Income tax purposes was approximately $4,140,355.
(C) Reconciliation of real estate owned at December 31, 1996, 1995, and
1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at beginning of period $4,192,779 $4,140,355 $4,075,542
Additions 12,407 52,424 64,813
Reductions 0 0 0
---------- ---------- ----------
Balance at end of period $4,205,186 $4,192,779 $4,140,355
========== ========== ==========
<CAPTION>
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $1,203,992 $1,053,675 $ 903,528
Depreciation expense 145,998 150,317 150,147
Reductions 0 0 0
---------- ---------- ----------
Balance at end of period $1,349,990 $1,203,992 $1,053,675
========== ========== ==========
</TABLE>
F-22
<PAGE> 36
[SELF & MAPLES, P.A. 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, 1996 and 1995 and the related statements of operations,
partners' capital and cash flows for each of the three years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the 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, 1996 and 1995 and the results of its
operations and its cash flows for each of the three years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Self & Maples, P.A.
Oneonta, Alabama
January 24, 1997, except for Note 12, as to which the date is
February 3, 1997
F-23
<PAGE> 37
THE TEXAS JOINT VENTURE
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 770,794 $ 447,196
Marketable securities 2,190,840 1,409,670
Patient accounts receivable, net of allowance
for doubtful accounts of $106,750
in 1996 and $132,796 in 1995 849,065 717,552
Interest receivable 16,304 4,826
Estimated third-party payor settlements 137,964 202,244
Prepaid expenses and other assets 35,279 43,532
------------ ------------
Total current assets 4,000,246 2,825,020
Property and equipment, net of
accumulated depreciation 7,718,372 8,110,133
Due from affiliates 423,087 576,998
Deferred financing costs, net of
accumulated amortization of
$18,935 in 1996 and $13,651 in 1995 7,485 12,769
------------ ------------
Total assets $ 12,149,190 $ 11,524,920
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current maturities of long-term debt $ 60,600 $ 60,600
Accounts payable 697,963 588,225
Accrued payroll and payroll taxes 164,591 139,197
Accrued vacation 105,438 93,309
Accrued insurance 200,788 200,952
Accrued management fees 32,634 31,379
Estimated third-party payor settlements 149,694
Patient deposits and trust liabilities 97,367 117,005
Other accrued expenses 28,411 157,594
------------ ------------
Total current liabilities 1,537,486 1,388,261
Long-term debt, net of current maturities 631,250 691,850
------------ ------------
Total liabilities 2,168,736 2,080,111
------------ ------------
Partners' capital 9,980,454 9,444,809
------------ ------------
Total liabilities and partners' capital $ 12,149,190 $ 11,524,920
============ ============
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 38
<TABLE>
<CAPTION> 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Net patient service revenue $ 9,325,900 $ 8,647,019 $ 7,072,940
Other revenue 2,102 2,198 1,015
------------ ------------ ------------
Total revenue 9,328,002 8,649,217 7,073,955
------------ ------------ ------------
Operating expenses
Professional care of
patients 4,966,189 4,812,691 3,604,449
Dietary 628,473 616,733 586,512
Household and plant 637,129 618,775 571,882
General and administrative 1,248,000 1,063,756 1,051,234
Employee health and welfare 350,952 355,508 324,545
Depreciation and
amortization 440,475 450,189 449,049
------------ ------------ ------------
Total operating expenses 8,271,218 7,917,652 6,587,671
------------ ------------ ------------
Operating income 1,056,784 731,565 486,284
------------ ------------ ------------
Other income (expenses)
Interest income 126,921 107,160 39,215
Interest expense (68,589) (78,322) (70,603)
------------ ------------ ------------
Total other income (expense) 58,332 28,838 (31,388)
------------ ------------ ------------
Net income $ 1,115,116 $ 760,403 $ 454,896
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 39
THE TEXAS JOINT VENTURE
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MEDICAL INCOME PROPERTIES
LIMITED PARTNERSHIPS
--------------------
2A 2B TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at
December 31, 1993 $ 4,591,062 $ 4,591,062 $ 9,182,124
Distributions to
partners (189,999) (189,999) (379,998)
Net income 227,448 227,448 454,896
Unrealized loss on
marketable securities
available for sale (14,007) (14,008) (28,015)
----------- ----------- -----------
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
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 40
THE TEXAS JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patient care $ 9,416,614 $ 8,404,007 $ 7,066,092
Interest received 77,586 91,364 --
Other operating receipts 2,102 2,198 1,015
Cash paid to suppliers and
employees (7,831,212) (7,362,426) (5,972,586)
Interest paid (68,589) (78,322) (70,603)
----------- ----------- -----------
Net cash provided (used) by operations 1,596,501 1,056,821 1,023,918
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (43,430) (301,045) (352,677)
Purchases of marketable securities (1,642,784) (503,438) (1,381,702)
Maturities of marketable securities 900,000 500,000 --
----------- ----------- -----------
Net cash provided (used) by investing
activities (786,214) (304,483) (1,734,379)
----------- ----------- -----------
Cash flows from financing activities:
Payments on long-term debt and
lease obligations (60,600) (65,177) (71,908)
Distributions to partners (580,000) (580,000) (379,998)
Net related party transactions 153,911 (410,680) 55,651
----------- ----------- -----------
Net cash provided (used) by financing
activities (486,689) (1,055,857) (396,255)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 323,598 (303,519) (1,106,716)
Cash and cash equivalents, beginning
of year 447,196 750,715 1,857,431
----------- ----------- -----------
Cash and cash equivalents, end of year $ 770,794 $ 447,196 $ 750,715
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 41
THE TEXAS JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 1,115,116 $ 760,403 $ 454,896
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 440,475 450,189 449,049
Provision for losses on accounts
receivable 41,582 108,332 67,766
(Increase) decrease in:
Patient accounts receivable, net (173,095) (185,722) (78,414)
Interest receivable, securities
premium amortization and
securities discount accretion (49,335) (4,283) (39,215)
Estimated third-party payor
settlements 64,280 (177,135) 3,800
Prepaid expenses and other assets 8,253 4,746 (2,972)
Increase (decrease) in:
Accounts payable 109,738 37,306 187,004
Accrued expenses (90,569) 66,161 (47,627)
Estimated third-party payor
settlements 149,694 -- --
Other liabilities (19,638) (3,176) 29,631
------------ ------------ ------------
Total adjustments 481,385 296,418 569,022
------------ ------------ ------------
Net cash provided (used) by operations $ 1,596,501 $ 1,056,821 $ 1,023,918
============ ============ ============
Supplemental schedule of noncash investing and financing activities:
Unrealized gain (loss) on marketable
securities available for sale $ (529) $ (35,399) $ 28,015
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 42
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The Texas Joint Venture was formed on April 29, 1988, and is
engaged in the business of acquiring, operating and holding for
investment purposes, income-producing, health care related
properties, primarily nursing homes. The joint venture partners
are Medical Income Properties 2A Limited Partnership and Medical
Income Properties 2B Limited Partnership. Each partner owns 50%
of the Joint Venture. Both partners are part of a series of three
Delaware limited partnerships as represented by a Partnership
Prospectus dated October 22, 1986. The Texas Joint Venture
currently owns and operates two nursing homes in Texas.
(b) Allocation of Net Profits and Net Losses
Net profits and net losses are shared equally by the partners.
(c) Cash Distributions
Cash distributions are made quarterly within 45 days after the
end of the quarter. Cash flow shall be distributed equally to the
partners. Sale or financing proceeds will be distributed first to
creditors and then to the partners equally.
(d) Patient Service Revenue
Patient service revenue is recorded at the nursing homes'
established rates with contractual adjustments ($3,502,579 in
1996, $4,015,882 in 1995 and $2,929,956 in 1994), provision for
uncollectible accounts, (bad debt expense of $41,632 in 1996,
$108,332 in 1995 and $67,766 in 1994) and other discounts
deducted to arrive at net patient service revenue.
Net patient revenue includes amounts estimated by management to
be reimbursable by Medicare, Medicaid and other third-party
programs under the provisions of cost and prospective payment
reimbursement formulas in effect. Amounts received under these
programs are generally less than the established billing rates of
the nursing homes and the difference is reported as a contractual
adjustment and deducted from gross revenue.
The nursing homes recognize currently estimated final settlements
due from or to third-party programs. Final determination of
amounts earned is subject to audit by the intermediaries.
Differences between estimated provisions and
F-29
<PAGE> 43
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
final settlement will be reflected as charges or credits to
operating revenues in the year the cost reports are finalized.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation of the
buildings is provided over their estimated useful lives of thirty
years on the straight-line method. Equipment and other personal
property are depreciated over five to seven years on the
straight-line method.
(f) Income Taxes
Taxable income is allocated to the partners and, therefore, no
income taxes have been provided for in these financial
statements.
(g) Cash Equivalents Policy
For the purposes of the statements of cash flows, the Joint
Venture considers all highly liquid debt instruments with an
original maturity of three months or less to be cash equivalents.
(h) Uninsured Cash Balances
The Joint Venture maintains cash balances in several banks. Cash
accounts at banks are insured by the FDIC for up to $100,000.
Amounts in excess of insured limits were approximately $531,586
at December 31, 1996 and $274,391 at December 31, 1995. The 1995
amount includes the total of commingled funds discussed in Note
8., since the amount in excess of FDIC limits related to these
funds is not determinable.
(i) Marketable Securities
The classification of marketable securities is determined at the
date of purchase. Gains or losses on the sale of securities are
recognized on a specific identification basis. Marketable
securities represent an investment of excess funds as a part of
the Joint Venture's cash management policies. These securities
are considered to be available for sale under Statement of
Financial Accounting Standards No. 115 and are, thus, stated at
fair value. Unrealized gains and losses are recognized as a
component of partners' capital as is required by SFAS No. 115.
F-30
<PAGE> 44
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
(j) Uses of Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were assumed in
preparing the financial statements.
Note 2. ACQUISITIONS
On May 1, 1988, the Joint Venture purchased Renaissance Place Katy
Nursing Home located in Texas for $5,472,500 plus capitalized
acquisition costs and fees of $509,290. The seller took back a note
for $300,000 due May 1, 1992, that has subsequently been paid.
On May 1, 1988, the Joint Venture purchased Renaissance Place - Humble
Nursing Home located in Texas for $4,487,500 plus capitalized
acquisition costs and fees of $228,812.
Note 3. MARKETABLE SECURITIES
Marketable securities consist of U.S. Treasury securities. The
following schedule summarizes marketable securities activity for the
years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Beginning balance, amortized cost $1,402,286 $1,394,565
Purchase of marketable securities 1,642,784 503,438
Redemption of investments (900,000) (500,000)
Net amortization of premiums and
accretion of discounts 37,857 4,283
---------- ----------
Amortized cost 2,182,927 1,402,286
Gross unrealized gain (loss) 7,913 7,384
---------- ----------
Fair value $2,190,840 $1,409,670
========== ==========
</TABLE>
The maturities of investment securities at December 31, 1996 were as
follows:
<TABLE>
<S> <C>
Due in one year or less $ 500,713
Due in two years or less 1,682,214
----------
$2,182,927
==========
</TABLE>
F-31
<PAGE> 45
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 950,000 $ 950,000
Buildings and improvements 9,550,624 9,525,253
Furniture and equipment 1,136,348 1,118,289
----------- -----------
Total 11,636,972 11,593,542
Accumulated depreciation (3,918,600) (3,483,409)
----------- -----------
Net property and equipment $ 7,718,372 $ 8,110,133
=========== ===========
</TABLE>
Note 5. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mortgage note with a variable rate of interest
(9.25% at December 31, 1996 and 9.5% at
December 31, 1995) with monthly principal and
interest payments of $5,050 through April 26, 1998,
with a balloon payment due May 26, 1998. $ 691,850 $ 752,450
Less amounts due in one year
or less 60,600 60,600
--------- ---------
$ 631,250 $ 691,850
========= =========
</TABLE>
The aggregate annual maturities of long-term debts are as follows:
<TABLE>
<S> <C>
1997 $ 60,600
1998 631,250
---------
$ 691,850
=========
</TABLE>
The mortgage note is secured by all real estate owned by the Joint
Venture, as well as the real estate owned by The Alabama Joint
Venture. Both the Joint Venture and The Alabama Joint Venture are
jointly owned by the Medical Income Properties 2A Limited Partnership
(MIP2A) and the Medical Income Properties 2B Limited Partnership
(MIP2B). The General Partner of MIP2A and MIP2B has guaranteed the
debt, as well as pledged its stock and partnership interest. The
management company (See Note 6) has also guaranteed the debt and
entered into a negative pledge agreement whereby it will not pledge,
transfer or encumber its stock while the loan is outstanding. All
management fees are subordinate to the debt. The loan document
contains restrictive covenants associated with ratio
F-32
<PAGE> 46
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
and earnings requirements. Management is not aware of any conditions
that exist that would cause them to be in noncompliance with these
requirements.
Note 6. CONTRACTUAL AGREEMENTS
On May 1, 1988, the Joint Venture entered into a management agreement
whereby the Manager is required to perform certain services. The
agreement had an initial five-year term with one additional five-year
option that was exercised in 1993. Fees were based on 6% of gross
collected operating revenues through June 30, 1992. Thereafter they
were based on 5% of gross collected operating revenues, but not less
than $324,000 in a calendar year and were increased by an inflation
factor after 1992. These fees are subordinated to the outstanding
mortgage debt (See Note 5). The Manager has a right of first refusal
to match a bona fide offer made by an outside party to purchase or
lease the nursing home. The management agreement, as amended,
contained a termination clause.
The management agreement was amended on January 1, 1995. The amendment
calls for a fixed monthly management fee of $31,379 with a cost of
living factor equal to the greater of 4% per annum or the increase in
the Consumer Price Index or such other measure mutually agreeable to
the parties. The agreement expires December 31, 1998. The termination
on sale clause was amended to base the fee on a sum equal to the
discounted present value of the monthly management fee as of the date
of termination of the agreement times the number of months remaining
in the management agreement discounted to the date of termination at
an annual interest rate of ten percent (10%). In addition, the parties
agreed to terminate the Manager's right of first refusal.
Commencing January 1, 1996, the Management Agreement was extended for
a period of up to a maximum of eighteen months by one month for every
month after January 1, 1996 in which the parties are engaged in the
process of attempting to sell the Facilities. In the event of a sale
of the Facilities, the termination on sale fee described above would
be discounted to the date of termination at an annual rate of ten
percent (10%) and then further discounted by a factor of thirty-three
and one-third percent (33 1/3%).
Management fees charged to the Joint Venture were $391,610 in 1996,
$376,548 in 1995, and $362,065 in 1994.
Note 7. INCOME TAXES
No provision for income taxes is made in the financial statements
since taxable income is reported in the tax returns of the partners.
F-33
<PAGE> 47
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Differences between the net income as reported in the financial
statements and Federal taxable income arise from the nature and timing
of certain revenue and expense items. The following is a
reconciliation of reported net income and Federal taxable income.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income as reported $1,115,116 $760,403 $454,896
Adjustments:
Depreciation differences 37,528 56,349 74,970
Bad debt reserve (26,045) 75,856 16,294
Nondeductible travel and
entertainment 9,231 9,770 6,430
Accrued insurance - (80,000) -
Vacation accrual 12,128 23,280 15,272
---------- -------- --------
Federal taxable income $1,147,958 $845,658 $567,862
========== ======== ========
</TABLE>
Note 8. RELATED PARTY TRANSACTIONS
Details of the amounts due from affiliates at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from MIP2A $212,456 $212,456
Due from MIP2B 210,631 210,631
Due from affiliates of the general
partner - 153,911
-------- --------
Due from affiliates $423,087 $576,998
======== ========
</TABLE>
During the year ended December 31, 1995, the General Partners
established a pooled investment account in which the General Partners
and the partnerships in which they act as general partners could
participate. This account was used by those entities to invest
overnight cash balances, and borrow funds when an entity needed
temporary access to funds. Each entity received its share of interest
earned monthly, and was charged interest on any funds borrowed.
The Articles of Limited Partnership of the joint venture partners
state that no General Partner shall have the authority to cause the
joint venture partners to make loans other than in connection with the
purchase, sale or disposition of partnership property. The Articles of
Limited Partnership also state the joint venture partners' funds may
not be commingled with any other entities' funds except as necessary
for the operation of the partnerships.
F-34
<PAGE> 48
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
At December 31, 1995, the Joint Venture had loaned $153,911 to the
other entities, and had earned interest of $24,238 from this
arrangement.
See Footnote 12 for sale of affiliated assets.
Note 9. CONTINGENCY
On May 1, 1990, the Joint Venture began self insuring its workmen's
compensation claims for its two nursing home facilities. Accrued
liabilities have been estimated to cover all asserted and unasserted
claims and assessments and funds have been escrowed to cover such
claims. The Joint Venture maintains insurance or reserves that it
believes are adequate to meet the needs of the Joint Venture.
While the Joint Venture Partners have been named as a defendant in
several lawsuits, nothing has come to the attention of the Joint
Venture that leads it to believe that it is exposed to a risk of
material loss not covered by insurance or reserves.
The real estate owned by The Texas Joint Venture is mortgaged as
security on debt incurred by a joint venture partner Medical Income
Properties 2A Limited partnership (MIP2A). This debt is also secured
by all other real estate owned by MIP2A. The total outstanding debt
secured by all these properties is $3,805,555.
Note 10. CONCENTRATIONS IN REVENUE SOURCES
The Joint Venture provides patient care services under various third
party agreements. The principal sources of revenue under these
contracts are derived primarily through the Medicaid and Medicare
programs, as well as contracts with private pay patients who do not
qualify for assistance from the other programs. The percentage of the
Joint Venture's income from each of these sources for the years ended
December 31, 1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Private pay patients 15.07% 18.05% 19.42%
Medicaid 39.62% 38.99% 47.81%
Medicare 45.31% 42.96% 32.77%
------ ------ ------
Total 100.00% 100.00% 100.00%
====== ====== ======
</TABLE>
The percentage attributable to private pay patients includes only
amounts due for services where the primary payer is a private source.
The Medicaid and Medicare percentages include amounts due from those
programs as well as the patient's financial responsibility incurred
under these contracts.
F-35
<PAGE> 49
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Statement No. 107, Disclosures about Fair Value
of Financial Instruments ("FAS 107") requires disclosure of fair value
information about financial instruments, whether or not recognized on
the face of the balance sheet, for which it is practicable to estimate
the value. The assumptions used in the estimation of the fair value of
the Company's financial instruments are detailed below. Where quoted
prices are not available, fair values are based on estimates using
discounted cash flows and other valuation techniques. The use of
discounted cash flows can be significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows.
The following disclosures should not be considered a surrogate of the
liquidation value of the Company, but rather represents a good-faith
estimate of the increase or decrease in value of financial instruments
held by the Company since purchase, origination or issuance. The
following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Investment securities available from sale: These securities are
being carried at fair market value as determined by quoted market
prices.
Long-term Debt: For variable rate notes, fair values are based on
carrying values.
The other financial instruments of the Company are short-term
assets and liabilities whose carrying amounts reported in the
balance sheet approximate fair value. These items include cash,
accounts receivable and accounts payable.
Note 12. SUBSEQUENT EVENT
On February 3, 1997, Medical Income Properties 2A Limited Partnership
and Medical Income Properties 2B Limited Partnership, the general
partners of The Texas Joint Venture, entered into a purchase agreement
with Omega HealthCare Investors, Inc. to sell all of the real and
personal property of the nursing home facilities.
F-36
<PAGE> 50
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
The purchase price is 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 will be reduced by expenses incurred as a
result of the sale, cash offsets for liabilities assumed by the buyer
and existing indebtedness. These payments should approximate
$2,505,000.
The closing could take place as early as March 31, 1997 and can be
extended by the Partnership until April 30, 1997. If conditions
precedent to either party's obligation to close are not satisfied or
waived, the closing can be extended to a date no later than July 31,
1997. Approximately $365,000 of these proceeds will be set aside in a
joint signature account for the purpose of securing all of the
seller's obligations under the purchase agreement. These funds will be
available to the Partnership in the event that these obligations do
not exceed the funds held in escrow.
In addition, a separate amount of proceeds of approximately $400,000
will also be held in reserve by the Alabama Joint Venture pending
final settlement of third-party cost reports and other contingencies.
This agreement can be terminated by mutual consent of the parties and
other conditions precedent.
In conjunction with the above sale, Omega HealthCare Investors, Inc.
has agreed to a similar purchase of assets from RWB Medical Properties
Limited Partnership IV, of which an officer of QualiCorp, Inc. owns
either directly or indirectly a 21.53% interest. This sale relates to
a 131 bed nursing home in Patterson, Louisiana and the purchase price
for the assets is $5,350,000.
F-37
<PAGE> 51
[SELF & MAPLES, P.A. 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 1996 appears on page 1. Those audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
Schedule of Valuation and Qualifying Accounts and Reserves for Allowances for
Doubtful Accounts, Schedule of Consolidated Supplementary Income Statement
Information, and Schedule of Real Estate and Accumulated Depreciation are
presented for purposes of additional analysis and are not required parts of the
basic financial statements. Such information has been subjected to the auditing
procedures applied to the audits of the basic financial statements, and in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Self & Maples, P.A.
Oneonta, Alabama
January 24, 1997, except for Note 12, as to which the date is
February 3, 1997
F-38
<PAGE> 52
THE TEXAS JOINT VENTURE
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Balance at beginning of year $ 132,796 $ 56,941 $ 40,647
Charged to patient service
revenues (67,678) (32,477) (51,472)
Write-offs 41,632 108,332 67,766
--------- --------- --------
Balance at end of year $ 106,750 $ 132,796 $ 56,941
========= ========= ========
</TABLE>
F-39
<PAGE> 53
THE TEXAS JOINT VENTURE
SCHEDULE X
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Professional care of patients
Nursing salaries and wages $2,442,501 $2,469,846 $2,197,347
Ancillary services expense 1,830,025 1,714,698 940,266
Supplies 138,992 151,705 107,170
Temporary labor 4,380 83,851 32,084
General and administrative
Salaries and wages 236,614 207,708 192,944
Accounting and auditing 87,134 64,745 69,999
Insurance 132,282 13,436 48,076
Property tax 249,483 237,917 223,764
Management fees 391,610 376,548 362,065
Dietary
Food 298,273 291,648 279,660
Household and plant
Repairs and maintenance 73,771 103,388 73,199
Utilities 190,141 165,204 175,535
Depreciation $ 435,191 $ 444,905 $ 443,765
========== ========== ==========
</TABLE>
F-40
<PAGE> 54
THE TEXAS JOINT VENTURE
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED
TO PARTNERSHIP(A) SUBSEQUENT TO
ACQUISITION
BUILDING AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST
- ----------- ------------ ---------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
RENAISSANCE PLACE-KATY $ 0 $650,000 $4,822,500 $503,346 $509,290
RENAISSANCE PLACE-HUMBLE 691,850 300,000 4,187,500 435,524 228,812
-------- -------------------------- ------------------------
$691,850 $950,000 $9,010,000 $938,870 $738,102
======== ========================== ========================
<CAPTION>
LIFE ON WHICH
GROSS AMOUNT AT WHICH CARRIED DEPRECIATION
AS OF DECEMBER 31, 1996(B) IN LATEST
STATEMENT OF
BUILDING AND ACCUMULATED DATE OF DATE OPERATION IS
LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
-------------------------------------------- ------------ ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
RENAISSANCE PLACE-KATY $650,000 $ 5,835,136 $ 6,485,136 $2,082,569 1984 05/01/88 5 TO 30 YEARS
RENAISSANCE PLACE-HUMBLE 300,000 4,851,836 5,151,836 1,836,031 1987 05/01/88 5 TO 30 YEARS
---------------------------------------------- ----------
$950,000 $10,686,972 $11,636,972 $3,918,600
============================================== ==========
</TABLE>
(A) The initial cost to the Partnership represents the original purchase
price of the properties.
(B) The aggregate cost of real estate owned at December 31, 1996 for
Federal Income tax purposes was approximately $11,636,972.
(C) Reconciliation of real estate owned at December 31, 1996, 1995, and
1994:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period $11,593,542 $11,292,495 $10,939,816
Additions 43,430 301,047 352,679
Reductions 0 0 0
----------- ----------- -----------
Balance at end of period $11,636,972 $11,593,542 $11,292,495
=========== =========== ===========
<CAPTION>
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 3,479,409 $3,038,503 $2,594,737
Depreciation expense 439,191 440,906 443,766
Reductions 0 0 0
----------- ----------- -----------
Balance at end of period $ 3,918,600 $ 3,479,409 $ 3,038,503
=========== =========== ===========
</TABLE>
F-41
<PAGE> 55
[SELF & MAPLES, P.A. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
The Alabama Joint Venture
We have audited the balance sheets of The Alabama Joint Venture as of December
31, 1996 and 1995 and the related statements of operations, partners' capital
and cash flows for each of the three years in the three-year period ended
December 31, 1996. These financial statements are the responsibility of the
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 Alabama Joint Venture as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for each of the three years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Self & Maples, P.A.
Oneonta, Alabama
January 24, 1997, except for Note 12, as to which the date is
February 3, 1997
F-42
<PAGE> 56
THE ALABAMA JOINT VENTURE
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 491,979 $ 297,621
Marketable securities 250,100 955,515
Patient accounts receivable, net of
allowance for doubtful accounts of
$38,502 in 1996 and $42,684 in 1995 511,724 643,798
Interest receivable 1,320 2,213
Estimated third-party payor settlements 429,090 445,824
Prepaid expenses and other assets 15,340 25,650
---------- ----------
Total current assets 1,699,553 2,370,621
Property and equipment, net of accumulated
depreciation and amortization 4,383,681 4,372,881
Due from affiliates 980,471 925,792
Deferred financing costs, net of
accumulated amortization of $14,780
in 1996 and $10,655 in 1995 5,842 9,967
---------- ----------
Total assets $7,069,547 $7,679,261
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current maturities of long-term debt 163,667 163,667
Accounts payable 254,902 317,881
Accrued payroll and payroll taxes 86,000 70,764
Accrued vacation 86,243 71,814
Accrued insurance 8,489 11,812
Accrued management fees 24,833 23,877
Estimated third-party payor settlements 58,291 --
Patient deposits and trust liabilities 39,668 31,787
Other accrued expenses 21,493 21,630
---------- ----------
Total current liabilities 743,586 713,232
Long-term debt, net of current maturities 1,704,860 1,868,527
---------- ----------
Total liabilities 2,448,446 2,581,759
---------- ----------
Partners' capital 4,621,101 5,097,502
---------- ----------
Total liabilities and partners' capital $7,069,547 $7,679,261
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE> 57
THE ALABAMA JOINT VENTURE
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Net patient service revenue $ 6,393,242 $ 5,903,666 $ 5,132,454
Other revenue 3,143 4,097 5,416
----------- ----------- -----------
Total revenue 6,396,385 5,907,763 5,137,870
----------- ----------- -----------
Operating expenses
Professional care of
patients 3,025,669 2,698,179 2,073,096
Dietary 517,954 479,390 454,212
Household and plant 483,065 476,219 461,555
General and administrative 753,975 727,852 764,525
Employee health and welfare 253,917 236,830 236,575
Depreciation and
amortization 232,160 252,043 262,019
----------- ----------- -----------
Total operating expenses 5,266,740 4,870,513 4,251,982
----------- ----------- -----------
Operating income 1,129,645 1,037,250 885,888
----------- ----------- -----------
Other income (expenses)
Interest income 54,842 72,267 28,673
Interest expense (184,787) (211,684) (188,846)
Provider fees (182,993) (182,993) (182,993)
----------- ----------- -----------
Total other income
(expenses) (312,938) (322,410) (343,166)
----------- ----------- -----------
Net income $ 816,707 $ 714,840 $ 542,722
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE> 58
THE ALABAMA JOINT VENTURE
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
MEDICAL INCOME PROPERTIES
LIMITED PARTNERSHIPS
2A 2B TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at
December 31, 1993 $ 2,245,570 $ 1,871,684 $ 4,117,254
Distributions to
partners (103,645) (86,355) (190,000)
Net income 296,055 246,667 542,722
Unrealized loss on
marketable securities
available for sale (9,479) (7,898) (17,377)
----------- ----------- -----------
Partners' capital at
December 31, 1994 2,428,501 2,024,098 4,452,599
Distributions to
partners (49,095) (40,905) (90,000)
Net income 389,945 324,895 714,840
Unrealized gain on
marketable securities
available for sale 10,944 9,119 20,063
----------- ----------- -----------
Partners' capital at
December 31, 1995 2,780,295 2,317,207 5,097,502
Distributions to
partners (703,695) (586,305) (1,290,000)
Net Income 445,514 371,193 816,707
Unrealized loss on
marketable securities
available for sale (1,695) (1,413) (3,108)
----------- ----------- -----------
Partners' capital at
December 31, 1996 $ 2,520,419 $ 2,100,682 $ 4,621,101
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE> 59
THE ALABAMA JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patient care $ 6,600,341 $ 5,201,651 $ 5,105,784
Interest received 58,042 69,594 19,780
Other operating receipts 3,143 4,097 5,416
Cash paid to suppliers and
employees (5,052,207) (4,479,328) (3,888,461)
Interest paid (184,787) (211,684) (188,846)
Provider fees (182,993) (182,993) (182,993)
----------- ----------- -----------
Net cash provided (used) by operations 1,241,539 401,337 870,680
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (238,835) (130,636) (84,163)
Purchases of marketable securities -- (252,099) (988,791)
Maturities of marketable securities 700,000 293,993 --
----------- ----------- -----------
Net cash provided (used) by investing
activities 461,165 (88,742) (1,072,954)
----------- ----------- -----------
Cash flows from financing activities:
Payments on long-term debt and
lease obligations (163,667) (165,037) (169,444)
Distributions to partners (1,290,000) (90,000) (190,000)
Net related party transactions (54,679) (160,872) (220,513)
----------- ----------- -----------
Net cash provided (used) by
financing activities (1,508,346) (415,909) (579,957)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 194,358 (103,314) (782,231)
Cash and cash equivalents, beginning
of year 297,621 400,935 1,183,166
----------- ----------- -----------
Cash and cash equivalents, end of year $ 491,979 $ 297,621 $ 400,935
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE> 60
THE ALABAMA JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 816,707 $ 714,840 $ 542,722
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 232,160 252,043 262,019
Provision for losses on accounts
receivable 33,872 32,956 41,660
(Increase) decrease in:
Patient accounts receivable, net 98,202 (253,138) (205,764)
Interest receivable, securities
premium amortization, and
securities discount accretion 3,200 54 (8,894)
Estimated third-party payor
settlements 16,734 (413,954) 137,435
Prepaid expenses and other assets 10,310 29,869 (25,571)
Increase (decrease) in:
Accounts payable (62,979) 158,732 71,936
Accrued expenses 27,161 (56,318) 10,303
Estimated third-party payor
settlements 58,291 (70,606) 31,885
Other liabilities 7,881 6,859 12,949
----------- ----------- -----------
Total adjustments 424,832 (313,503) 327,958
----------- ----------- -----------
Net cash provided (used) by operations $ 1,241,539 $ 401,337 $ 870,680
=========== =========== ===========
Supplemental schedule of noncash investing and financing activities:
Unrealized (gain) loss on marketable
securities available for sale $ 3,108 $ (20,063) $ 17,377
=========== =========== ===========
Securities valuation allowance (3,108) 20,063 (17,377)
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE> 61
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The Alabama Joint Venture was formed on July 1, 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 (MIP2A) and
Medical Income Properties 2B Limited Partnership (MIP2B). Medical
Income Properties 2A Limited Partnership owns 54.55% of the Joint
Venture while Medical Income Properties 2B Limited Partnership
owns 45.45% 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 Alabama Joint
Venture currently owns and operates one nursing home in Alabama.
(b) Allocation of Net Profits and Net Losses
Net profits and net losses are shared according to the partners'
ownership percentages; 54.55% to Medical Income Properties 2A and
45.45% to Medical Income Properties 2B.
(c) Cash Distributions
Cash distributions are made quarterly within 45 days after the
end of the quarter. Cash flow is distributed to the partners
according to their ownership percentages. Sale or financing
proceeds will be distributed first to creditors and then to the
partners according to their ownership percentages.
(d) Patient Service Revenue
Patient service revenue is recorded at the nursing home's
established rates with contractual adjustments ($1,615,337 in
1996, $1,536,130 in 1995 and $774,913 in 1994), provision for
uncollectible accounts, (bad debt expense of $33,872 in 1996,
$32,956 in 1995 and $41,660 in 1994) and other discounts deducted
to arrive at net patient service revenue.
Net patient service 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-48
<PAGE> 62
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
The nursing home recognizes 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 are
reflected as charges or credits to operating revenues in the year
the cost reports are finalized.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation of the
buildings is provided over their estimated useful lives of thirty
years on the straight-line method. Equipment and other personal
property are depreciated over five to seven years on the
straight-line method.
(f) Income Taxes
Taxable income is allocated to the partners and, therefore, no
income taxes have been provided for in these financial
statements.
(g) Cash Equivalents Policy
For the purposes of the statements of cash flows, the Joint
Venture considers all highly liquid debt instruments with an
original maturity of three months or less to be cash equivalents.
(h) Uninsured Cash Balances
The Joint Venture maintains cash balances in several banks. Cash
accounts at banks are insured by the FDIC for up to $100,000.
Amounts in excess of insured limits were approximately $359,216
at December 31, 1996 and $161,873 at December 31, 1995. The 1996
and 1995 amounts do not include the total of commingled funds
discussed in Note 8, since the amount in excess of FDIC limits
related to these funds is not determinable.
(i) Marketable Securities
The classification of marketable securities is determined at the
date of purchase. Gains or losses on the sale of securities are
recognized on a specific identification basis. Marketable
securities represent an investment of excess funds as a part of
the Joint Venture's cash management policies. These securities
are considered to be available for sale under Statement of
Financial Accounting Standards No. 115 and are, thus, stated at
fair value. Unrealized gains and losses are
F-49
<PAGE> 63
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
recognized as a component of partners' capital as is required by
SFAS No. 115.
(i) 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 July 1, 1988, the Joint Venture purchased Medical Park Nursing Home
(183 beds) located in Alabama for $5,100,000 plus capitalized
acquisition costs and fees of $379,272.
Note 3. MARKETABLE SECURITIES
Marketable securities consist of U.S. Treasury securities. The
following schedule summarizes marketable securities activity for the
years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Beginning balance, at amortized cost $ 952,829 $ 996,509
Purchase of marketable securities - 252,095
Redemption of investments (700,000) (293,993)
Net amortization of premiums and
accretion of discounts (2,305) (1,782)
--------- ---------
Amortized cost 250,524 952,829
Gross unrealized gain (loss) (424) 2,686
--------- ---------
Fair value $ 250,100 $ 955,515
========= =========
</TABLE>
The maturities of investment securities at December 31, 1996 were as
follows:
<TABLE>
<S> <C>
Due in one year or less $ 250,524
=========
</TABLE>
F-50
<PAGE> 64
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 400,000 $ 400,000
Buildings and improvements 5,473,692 5,256,767
Furniture and equipment 585,827 563,917
---------- ----------
Total 6,459,519 6,220,684
Accumulated depreciation
and amortization (2,075,838) (1,847,803)
---------- ----------
Net property and equipment $4,383,681 $4,372,881
========== ==========
</TABLE>
Note 5. LONG-TERM DEBT
Long-term at debt December 31 was as follows:
<TABLE>
<S> <C> <C>
1996 1995 Mortgage notes with
interest at prime plus 1% (9.25%
at December 31, 1996 and 9.5%
at December 31, 1995) payable
in 60 payments of $13,639
plus interest through April 26,
1998, with a balloon payment
due May 26, 1998 $1,868,527 $2,032,194
Less amounts due in one year
or less 163,667 163,667
---------- ----------
$1,704,860 $1,868,527
========== ==========
</TABLE>
The aggregate annual maturities of long-term debts are as follows:
<TABLE>
<S> <C>
1997 $ 163,667
1998 1,704,860
----------
$1,868,527
==========
</TABLE>
The mortgage note is secured by all real estate owned by the Joint
Venture, as well as the real estate owned by The Texas Joint Venture.
Both the Joint Venture and The Texas Joint Venture are jointly owned
by the Medical Income Properties 2A Limited Partnership (MIP2A) and
the Medical Income Properties 2B Limited Partnership (MIP2B). The
General Partner of MIP2A and MIP2B has guaranteed the debt, as well as
pledged its stock and partnership interest. The management company
(See Note 6) has also guaranteed the debt and entered into a negative
pledge agreement whereby it will not pledge, transfer or encumber its
stock while the loan is
F-51
<PAGE> 65
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
outstanding. All management fees are subordinate to the debt. The loan
document contains restrictive covenants associated with ratio and
earnings requirements. Management is not aware of any conditions that
exist that would cause them to be in noncompliance with these
requirements.
Note 6. CONTRACTUAL AGREEMENTS
On July 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. Fees were based on 6% of gross collected operating revenues
through June 30, 1993. Thereafter they were based on 5% of gross
collected operating revenues, but not less than $250,000 in a calendar
year and were increased by an inflation factor after 1992. These fees
are subordinated to the outstanding mortgage debt (See Note 5). The
Manager has a right of first refusal to match a bona fide offer made
by an outside party to purchase or lease the nursing home. The
management agreement, as amended, contained a termination clause.
The management agreement was amended on January 1, 1995. The amendment
calls for a fixed monthly management fee of $23,877 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 Facility. In the event of a sale of
the Facility, the termination on sale fee described above would be
discounted to the date of termination at an annual rate of ten percent
(10%) and then further discounted by a factor of thirty-three and
one-third percent (33 1/3%).
Management fees charged to the Joint Venture were $297,990 in 1996,
$286,529 in 1995, and $275,509 in 1994.
F-52
<PAGE> 66
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 7. INCOME TAXES
No provision for income taxes is made in the financial statements
since taxable income is reported in the income tax returns of 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>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income as reported $816,707 $714,840 $542,722
Adjustments:
Depreciation differences (1,935) 27,157 49,037
Bad debt reserve (4,182) (23,316) 41,000
Nondeductible travel and
entertainment 3,407 2,534 1,753
Accrued insurance - (8,000) -
Vacation accrual 14,429 1,204 7,376
-------- -------- --------
Federal taxable income $828,426 $714,419 $641,888
======== ======== ========
</TABLE>
Note 8. RELATED PARTY TRANSACTIONS
Amounts due from affiliates at December 31 are stated as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due from MIP2A $507,054 $447,954
Due from MIP2B 473,417 382,517
Due from affiliates of the general
partner - 95,321
-------- --------
Due from affiliates $980,471 $925,792
======== ========
</TABLE>
During the year ended December 31, 1995, the General Partners
established a pooled investment account in which the General Partners
and the partnerships in which they act as general partners could
participate. This account was used by those entities to invest
overnight cash balances, and borrow funds when an entity needed
temporary access to funds. Each entity received its share of interest
earned monthly, and was charged interest on any funds borrowed.
The Articles of Limited Partnership of the joint venture partners
state that no General Partner shall have the authority to cause the
joint venture partners to make loans other than in connection with the
purchase, sale or disposition of partnership property. The
F-53
<PAGE> 67
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Articles of Limited Partnership also state the joint venture partners'
funds may not be commingled with any other entities' funds except as
necessary for the operation of the partnerships.
At December 31, 1995, the Joint Venture had loaned $95,321 to the
other entities, and had earned interest of $9,633 from this
arrangement.
See Footnote 12 for sale of affiliated assets.
Note 9. CONTINGENCY
The real estate owned by The Alabama Joint Venture is mortgaged as
security on debt incurred by a joint venture partner Medical Income
Properties 2A Limited partnership (MIP2A). This debt is also secured
by all other real estate owned by MIP2A. The total outstanding debt
secured by all these properties is $3,805,555.
Note 10. CONCENTRATIONS IN REVENUE SOURCES
The Joint Venture provides patient care services under various third
party agreements. The principal sources of revenue under these
contracts are derived primarily through the Medicaid and Medicare
programs, as well as contracts with private pay patients who do not
qualify for assistance from the other programs. The percentage of the
Joint Venture's income from each of these sources for the years ended
December 31, 1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Patients and sponsors 10.28% 14.25% 19.54%
Medicaid 55.54% 49.53% 61.49%
Medicare 34.18% 36.22% 18.97%
------ ------ ------
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
F-54
<PAGE> 68
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
are detailed below. Where quoted prices are not available, fair values
are based on estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. The following disclosures should not
be considered a surrogate of the liquidation value of the Company, but
rather represents a good-faith estimate of the increase or decrease in
value of financial instruments held by the Company since purchase,
origination or issuance. The following methods and assumptions were
used by the Company in estimating the fair value of its financial
instruments:
Investment securities available from sale: These securities are
being carried at fair market value as determined by quoted market
prices.
Long-term Debt: For variable rate notes, fair values are based on
carrying values.
The other financial instruments of the Company are short-term
assets and liabilities whose carrying amounts reported in the
balance sheet approximate fair value. These items include cash,
accounts receivable and accounts payable.
Note 12. SUBSEQUENT EVENT
On February 3, 1997, Medical Income Properties 2A Limited Partnership
and Medical Income Properties 2B Limited Partnership, the general
partners of The Alabama Joint Venture, entered into a purchase
agreement with Omega HealthCare Investors, Inc. to sell all of the
real and personal property of the 183 bed nursing home known as
Medical Park Convalescent Center.
The purchase price allocated to Medical Park is $9,950,000. The
closing could take place as early as March 31, 1997 and can be
extended by the Partnership until April 30, 1997. If conditions
precedent to either party's obligation to close are not satisfied or
waived, the closing can be extended to a date no later than July 31,
1997. Approximately $362,000 of these proceeds will be set aside in a
joint signature account for the purpose of securing all of the
seller's obligations under the purchase agreement. These funds will be
available to the Partnership in the event that these obligations do
not exceed the funds held in escrow.
In addition, a separate amount of proceeds of approximately $397,000
will also be held in reserve by the Alabama Joint Venture pending
final settlement of third-party cost reports and other contingencies.
F-55
<PAGE> 69
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Proceeds from the sale will be reduced by expenses incurred as a
result of the sale, cash offsets for liabilities assumed by the buyer
and existing indebtedness. These payments should approximate
$3,516,000.
This agreement can be terminated by mutual consent of the parties and
other conditions precedent.
In conjunction with the above sale, Omega HealthCare Investors, Inc.
has agreed to a similar purchase of assets from RWB Medical Properties
Limited Partnership IV, of which an officer of QualiCorp, Inc. owns
either directly or indirectly a 21.53% interest. This sale relates to
a 131 bed nursing home in Patterson, Louisiana and the purchase price
for the assets is $5,350,000.
F-56
<PAGE> 70
[SELF & MAPLES, P.A. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
ON ADDITIONAL INFORMATION
To the Partners
The Alabama Joint Venture
Our report on our audits of the basic financial statements of The Alabama Joint
Venture for 1996 appears on page 1. Those audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
Schedule of Valuation and Qualifying Accounts and Reserves for Allowances for
Doubtful Accounts, Schedule of Consolidated Supplementary Income Statement
Information, and Schedule of Real Estate and Accumulated Depreciation are
presented for purposes of additional analysis and are not required parts of the
basic financial statements. Such information has been subjected to the auditing
procedures applied to the audits of the basic financial statements, and in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Self & Maples, P.A.
Oneonta, Alabama
January 24, 1997, except for Note 12, as to which the date is
February 3, 1997
F-57
<PAGE> 71
THE ALABAMA JOINT VENTURE
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 42,684 $ 66,000 $ 25,000
Charged to patient service
revenue (38,054) (56,272) (660)
Write-offs 33,872 32,956 41,660
----------- ----------- -----------
Balance at end of year $ 38,502 $ 42,684 $ 66,000
=========== =========== ===========
</TABLE>
F-58
<PAGE> 72
THE ALABAMA JOINT VENTURE
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Professional care of patients
Salaries and wages $ 1,808,353 $ 1,657,908 $ 1,553,602
Ancillary service expense 821,795 629,505 175,645
Supplies 109,716 123,550 88,497
General and administrative
Salaries and wages 121,619 118,380 122,197
Accounting and auditing 58,340 49,491 50,456
Insurance 180,348 155,990 215,447
Property tax 25,496 25,491 25,586
Management fees 297,990 286,529 275,509
Dietary
Food cost 252,802 228,560 210,041
Household and plant
Repairs and maintenance 30,625 52,658 54,880
Utilities 128,941 112,945 103,983
Depreciation $ 228,035 $ 247,918 $ 257,894
=========== =========== ===========
</TABLE>
F-59
<PAGE> 73
THE ALABAMA JOINT VENTURE
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED
TO PARTNERSHIP(A) SUBSEQUENT TO
ACQUISITION
BUILDING AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST
----------- ------------ ---------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
MEDICAL PARK $1,868,527 $400,000 $4,700,000 $980,247 $379,272
========== ======== ========== ======== ========
<CAPTION>
LIFE ON WHICH
GROSS AMOUNT AT WHICH CARRIED DEPRECIATION
AS OF DECEMBER 31, 1996(B) IN LATEST
STATEMENT OF
BUILDING AND ACCUMULATED DATE OF DATE OPERATION IS
LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
---------------------------------------- ------------ ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MEDICAL PARK $400,000 $6,059,519 $6,459,519 $2,075,838 1987 05/01/88 5 TO 30 YEARS
======== ========== ========== ==========
</TABLE>
(A) The initial cost to the Partnership represents the original purchase
price of the properties.
(B) The aggregate cost of real estate owned at December 31, 1996 for
Federal Income tax purposes was approximately $6,441,218.
(C) Reconciliation of real estate owned at December 31, 1996, 1995, and
1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period $6,220,684 $6,090,048 $6,005,887
Additions 238,835 130,636 84,161
Reductions 0 0 0
---------- ---------- ----------
Balance at end of period $6,459,519 $6,220,684 $6,090,048
========== ========== ==========
<CAPTION>
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $1,847,803 $1,594,024 $1,341,992
Depreciation expense 228,035 253,779 252,032
Reductions 0 0 0
---------- ---------- ----------
Balance at end of period $2,075,838 $1,847,803 $1,594,024
========== ========== ==========
</TABLE>
F-60
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP FOR THE
YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 269,249
<SECURITIES> 0
<RECEIVABLES> 718,753
<ALLOWANCES> 102,349
<INVENTORY> 0
<CURRENT-ASSETS> 1,143,403
<PP&E> 4,205,186
<DEPRECIATION> 1,349,990
<TOTAL-ASSETS> 11,087,491
<CURRENT-LIABILITIES> 1,498,131<F1>
<BONDS> 640,309
0
0
<COMMON> 0
<OTHER-SE> 8,949,051
<TOTAL-LIABILITY-AND-EQUITY> 11,087,491
<SALES> 0
<TOTAL-REVENUES> 3,448,070
<CGS> 0
<TOTAL-COSTS> 3,670,369
<OTHER-EXPENSES> 65,880
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,603
<INCOME-PRETAX> 581,970
<INCOME-TAX> 0
<INCOME-CONTINUING> 581,970
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 581,970
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>5.02(31) REPRESENTS TOTAL PARTNERSHIP CAPITAL INCLUDING NET INCOME NET OF
DISTRIBUTIONS PAID
</FN>
</TABLE>
