<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1997 33-6122-02
</TABLE>
MEDICAL INCOME PROPERTIES 2B
LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 59-2726599
(State of Organization) (IRS Employer Identification Number)
</TABLE>
1100 ABERNATHY ROAD, BUILDING 500, SUITE 715
ATLANTA, GA 30328
(Address of Principal Executive Office)
(770) 668-1080
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
----------------
Limited Partnership Units
Indicate by check whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant is not applicable. The number of limited partnership units
outstanding as of March 23, 1998 was 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.
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<PAGE> 2
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1: Business.................................................... 1
Item 2: Properties.................................................. 2
Item 3: Legal Proceedings........................................... 2
Item 4: Submission of Matters to a Vote of Security Holders......... 2
PART II
Item 5: Market for the Registrant's Partnership Units and Related
Security Holder Matters..................................... 2
Item 6: Selected Financial Data..................................... 2
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 3
Item 8: Financial Statements and Supplementary Data................. 4
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 4
PART III
Item 10: Directors and Executive Officers of the Registrant.......... 4
Item 11: Executive Compensation...................................... 5
Item 12: Security Ownership of Certain Beneficial Owners and
Management.................................................. 5
Item 13: Certain Relationships and Related Transactions.............. 5
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 6
Signatures............................................................ 7
</TABLE>
i
<PAGE> 3
PART I
ITEM 1. BUSINESS
Medical Income Properties 2B Limited Partnership (the "Partnership"), is a
Delaware limited partnership which was organized on April 29, 1987. 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 and employed
approximately 88 employees. The Partnership sold all of its operating assets on
March 31, 1997. For the remainder of 1997, the Partnership was in the process of
winding up its business and liquidating (the "Liquidation"). The Liquidation is
anticipated to continue until approximately May 31, 2000, due to certain
reimbursement policies of Medicaid and Medicare.
BUSINESS STRATEGY
The Partnership was formed for the purpose of investing primarily in
existing, improved, medically related, income-producing commercial properties,
such as medical office buildings and nursing homes. The Partnership's business
strategy was to hold real property investments, primarily health care related,
until such time as a sale or other disposition appears to be advantageous to the
Partnership's limited partners (the "Limited Partners") based on such factors as
potential capital appreciation, industry trends, cash flow and federal income
tax consequences to the Limited Partners.
SALE AGREEMENT
Effective on February 3, 1997, the Partnership entered into a Purchase and
Sale Agreement (the "Sale Agreement") with Qualicorp Management, Inc., the
managing general partner of the Partnership, and Omega Healthcare Investors,
Inc. (the "Purchaser") regarding the sale to the Purchaser of the Partnership's
interests in its facilities and the personal property and intangible assets
related to the operation of those facilities.
The description of the Sale Agreement set forth herein does not purport to
be complete and is qualified in its entirety by the provisions of the Sale
Agreement, filed as an exhibit to the Company's Current Report on Form 8-K dated
February 18, 1997.
The closing of the asset sale was contingent upon, among other factors,
consent to the transaction by the Limited Partners. The Partnership solicited
the consent of the Limited Partners in the Partnership's Consent Solicitation
Statement dated March 12, 1997, and the Limited Partners consented to the Sale
Agreement on March 28, 1997. The Partnership closed the transactions
contemplated by the asset sale on March 31, 1997.
Because the Purchaser had not obtained all of the necessary state approvals
for the transfer of operation of the Partnership's facilities, the Partnership
entered into an interim leasing arrangement with the Purchaser to provide
management and operation of the facilities for Omega until such approvals were
received. The interim leasing arrangements terminated on May 31, 1997, after the
Purchaser obtained the required approvals. Accordingly, effective as of May 31,
1997, the Partnership no longer owns any real property and has no employees.
Pursuant to the Sale Agreement, the Partnership received aggregate net
proceeds of $8,974,614. Proceeds from the Sale Agreement are being distributed
to the Limited Partners in installments as described below:
1. First Installment. The Limited Partners were asked to surrender
their partnership certificates in order to obtain the first installment
check on May 13, 1997. Limited Partners who returned their certificates
received a check in the amount of $725 per Unit.
2. Second Installment. A second distribution of $153 per Unit was
made on July 11, 1997. This distribution was primarily attributable to the
collection of accounts receivable in the period subsequent to the closing
less the payment of accounts payable and other liabilities, including
reserves set aside for contingencies that will be distributed in 1998 if no
longer needed.
<PAGE> 4
3. Final Installment. A final distribution consisting of unspent
reserves is anticipated to be made following the expiration of the
Partnership's representations and warranties to the Purchaser and any
additional period required to finally resolve any claims for
indemnification against the Partnership brought prior to the termination of
such period.
ITEM 2. PROPERTIES
At December 31, 1997, the Partnership did not own or lease any property.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal actions against the Partnership. As
noted in the financial statements Note 9, however, the Partnership does have
certain contingent liabilities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Limited Partners during the
fourth quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY
HOLDER MATTERS
There is no established public trading market for the Partnership Units.
There were 897 Limited Partners as of March 23, 1998. Distributions paid per
Unit for each quarter in the last five years are incorporated by reference from
Item 6 below.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the period January 1, 1993 to December 31, 1997
is shown below (000's omitted except for per share data and distributions):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Total Revenue........................... $ 1,675 $ 3,448 $ 3,433 $ 3,059 $ 2,989
Operating Income (Loss)................. (425) (222) (216) 36 264
Loss from Discontinued Operations....... (130) -- -- -- --
Gain on Sale of Properties.............. 2,475 -- -- -- --
Net Income.............................. 2,134 582 331 459 615
Per Share Data:
Net Income per Limited Partnership
Unit................................. $190.88 $ 49.62 $ 28.23 $ 39.14 $ 52.44
Financial Condition:
Total Assets............................ $11,398 $11,087 $11,206 $10,954 $10,597
Notes Payable........................... -- 704 763 816 879
Partner's Capital....................... 1,390 8,949 8,836 8,974 8,954
Distributions per Limited Partner Unit:
First Quarter........................... $ 10.00 $ 10.00 $ 10.00 $ 7.50 $ 7.50
Second Quarter.......................... 0.00 10.00 10.00 10.00 7.50
Third Quarter........................... 0.00 10.00 10.00 10.00 7.50
Fourth Quarter.......................... 0.00 10.00 10.00 10.00 7.50
Special Distribution of the Sale
Proceeds............................. 878.00 -- -- -- --
</TABLE>
2
<PAGE> 5
Quarterly Financial data for the period January 1, 1995 to December 31,
1997 (000's omitted):
<TABLE>
<CAPTION>
1997
-------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total Revenue......................................... $1,038 $ 736 $ -- $ (99)
Operating Income...................................... (63) (19) (51) (292)
Gain on Sale of Properties............................ 2,343 (110) -- 242
Net Income (loss)..................................... 2,447 (75) (8) (230)
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<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
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total Revenue.......................................... $883 $828 $821 $901
Income from Operations................................. (12) (82) (82) (40)
Net Income (Loss)...................................... 138 38 31 124
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Partnership discontinued its operations on May 31, 1997, following the
closing of the sale of substantially all of its assets and the termination of
the interim operating arrangements, and the Managing General Partner is in the
process of winding up the business and liquidating the Partnership. The
discussion of the Sale Agreement and the Liquidation is incorporated by
reference to Item 1. The Partnership is presently collecting its remaining
accounts receivable, paying vendors the remaining balances owed, and filing
terminating Medicare and Medicaid cost reports.
LIQUIDITY AND CAPITAL RESERVES
Cash and equivalent balances totaled $1,014,047 as of December 31, 1997, an
increase of $744,798 compared to December 31, 1996, primarily due to cash
received from the asset sale. Cash provided from operations increased from
$189,488 in 1996 to $324,165 in 1997. This difference primarily resulted from
collection of accounts receivable outstanding.
Payments for capital expenditures were reduced from $12,408 in 1996 to $0
in 1997 because no capital expenditures were made in 1997 due to the asset sale.
During 1997, the Partnership paid distributions to Limited Partners
totaling $888 per unit, which includes $878 return of capital from sale proceeds
returned to Limited Partners in the first two distributions of liquidation
proceeds. The Partnership made the first installment of the liquidation proceeds
totaling $7,909,791 or $725 per unit on May 12, 1997, and the second installment
totaling $1,668,771 or $153 per unit on July 11, 1997.
The Partnership will make a final distribution of remaining funds following
the expiration of the periods within which claims for breach of representations
and warranties, or other claims by Medicare, Medicaid or other third parties may
be made against the Partnership either by contract or under applicable law.
3
<PAGE> 6
RESULTS OF OPERATIONS
Fiscal Year 1997 Compared to 1996
The Partnership's net income for the year ended December 31, 1997 was
$2,134,254, compared to $581,970 in the previous year. The increase was
primarily due to the gains realized from the asset sale.
Revenues and operating expenses for 1997 were $1,675,043 and $2,100,296,
respectively, compared to $3,448,070 and $3,670,369 in 1996, the substantial
differences primarily due to the fact that the Partnership suspended all
business operations on May 31, 1997 and incurred substantial costs associated
with the asset sale. As a result of the foregoing, a net operating income loss
of $425,253 for 1997.
Other income (expenses) reflects higher interest income in 1997 primarily
due to interest earned on the proceeds from the asset sale.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X
are included in this Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the Partnership's two most recent fiscal years, the Partnership did
not change accountants and had no disagreement with its accountants on any
matters of accounting principles or practices or financial statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. QualiCorp
Management, Inc. ("QMI"), a Delaware corporation, is the Managing General
Partner of the Partnership. The directors and executive officers of QMI as of
December 31, 1997 are listed below. Directors serve for one year or until the
next annual meeting of stockholders of QMI or until their successors are elected
and qualified. QMI is a wholly-owned subsidiary of QualiCorp, Inc., a Louisiana
corporation. The directors and executive officers of QualiCorp, Inc. are also
listed below. The relationship of the Managing General Partner to its Affiliates
is described under the caption "Conflicts of Interest" at pages 28 through 30 of
the Prospectus, which pages are specifically incorporated by reference herein.
The executive officers of QMI and QualiCorp, Inc. are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND RECENT PRINCIPAL OCCUPATIONS
- ---- --- -------------------------------------------
<S> <C> <C>
John M. DeBlois............................ 61 Chairman of the Board since 1981. Chairman
of the Board of Qualicare, Inc., a hospital
management company, from the mid 1970's to
1983.
John H. Stoddard........................... 55 President and Chief Financial Officer since
July 1, 1988. Senior Vice President of
Safecare Health Services, Inc., a health
care management company, from September 1,
1985 to March 1988. From May 1983 to August
1985, Treasurer, Continental Health
Services, a health care management company.
Prior to May 1983, was Vice
President -- Finance with Qualicare, Inc.
</TABLE>
4
<PAGE> 7
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, 1997. The Partnership paid to Qualicorp, Inc.,
the parent of QMI, the Managing General Partner $114,771 in 1997 as
reimbursement for administrative expenses (primarily salaries) incurred during
the year. In addition, during 1997, the Partnership paid to Qualicorp, Inc.
$55,539 for property management fees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT/NATURE
NAME/ADDRESS OF BENEFICIAL
TITLE OF CLASS(1) OF BENEFICIAL OWNER(2) OWNERSHIP(3) PERCENT OF CLASS(4)
- ----------------------------- --------------------------- ------------- -------------------
<S> <C> <C> <C>
Partnership Units............ MacKenzie Patterson, Inc.* 1,205 Units Approximately
1640 School Street 11.04%
Suite 100
Moraga, CA 94556
</TABLE>
- ---------------
* JDF and Associates, LLC, Previously Owned Partnerships Income Fund II, L.P.,
Mackenzie Patterson Special Fund, L.P. Mackenzie Fund VI, Morago Gold, LLC,
and certain of the foregoing parties' affiliates are entities commonly
controlled by MacKenzie Patterson, Inc., which as of December 31, 1997, owned
1,205 (or approximately 11.04%) of the Partnership's outstanding units.
No other person or group is known by the Partnership to own beneficially
more than 5% of the outstanding units of the Partnership.
SECURITY OWNERSHIP OF MANAGEMENT
No executive officers and directors of QMI owned any units in the
Partnership at December 31, 1997. QualiCorp, Inc., parent of QMI, the
Partnership's Managing General Partner, held 44 units in the Partnership at
December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Qualicorp Inc., the parent of QMI, charged the following amounts for
property management fees and administrative expenses to the Partnership during
the periods shown:
<TABLE>
<CAPTION>
PROPERTY ADMINISTRATIVE
YEAR MANAGEMENT FEES EXPENSES
---- --------------- --------------
<C> <C> <C> <S>
1997 $ 55,539 $114,771
1996 132,974 84,896
1995 0 80,278
</TABLE>
Under the Partnership Agreement, the General Partners are entitled to
participate in distributions of the Partnership's Cash Flow as described under
the caption "Management Compensation" at pages 24 through 26 of the Prospectus.
Cash distributions of $8,210, $32,838 and $32,839, were made to the General
Partners during 1997, 1996 and 1995, respectively. The General Partners also
share in the Partnership's net profits and net losses.
5
<PAGE> 8
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. The Partnership's financial statements and supplementary information
appear in a separate section of this Form 10-K commencing on pages referenced
below:
<TABLE>
<S> <C>
Independent Auditor's Report Financial Statements........... F-1
Balance Sheets............................................ F-2
Statements of Operations.................................. F-3
Statements of Partners' Capital........................... F-5
Statements of Cash Flow................................... F-6
Notes to Financial Statements............................. F-8
Independent Auditor's Report on Information Accompanying the
Basic Financial Statements................................ F-19
Schedule VIII -- Valuation and Qualifying Accounts and
Reserves for Allowances for Doubtful Accounts............. F-20
Schedule X -- Consolidated Supplementary Income Statement
Information............................................... F-21
Schedule XI -- Real Estate and Accumulated Depreciation..... F-22
</TABLE>
2. Exhibits:
Exhibits listed below which have been filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, and which were filed as noted below, are hereby
incorporated by reference and made a part of this report with the same effect as
if filed herewith.
2. -- Purchase and Sale Agreement (the "Sale Agreement") dated February
3, 1997 (filed as an exhibit to the company's Form 8-K filed
February 18, 1997, and as an appendix to the Partnership's Consent
Solicitation Statement dated March 12, 1997).
3-A. -- The Prospectus of the Registrant dated October 11, 1984 as
supplemented August 8, 1985, August 14, 1985, October 2, 1985 and
November 21, 1985 and filed pursuant to Rule 424(b) under the
Securities Act of 1933 and Preliminary Supplement and Amendment
Number 5 dated November 29, 1985 is hereby incorporated herein by
reference.
3-B. -- Amended and Restated Articles of Limited Partnership set forth as
Exhibit A to the Prospectus, incorporated herein by reference.
(b) No reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended December 31, 1997.
6
<PAGE> 9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Atlanta,
State of Georgia.
MEDICAL INCOME PROPERTIES
2B LIMITED PARTNERSHIP
QUALICORP MANAGEMENT, INC.
Managing General Partner
By: /s/ JOHN H. STODDARD
------------------------------------
John H. Stoddard
President, Director, Chief
Financial Officer and Principal
Accounting Officer
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME POSITION DATE
---- -------- ----
<C> <S> <C>
/s/ JOHN M. DEBLOIS Chairman of the Board March 30, 1998
- -----------------------------------------------------
John M. DeBlois
/s/ JOHN H. STODDARD President, Director, Chief March 30, 1998
- ----------------------------------------------------- Financial Officer and
John H. Stoddard Principal Accounting
Officer
</TABLE>
7
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 11
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<PAGE> 12
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report................................. F-1
Financial Statements
Balance Sheets............................................. F-2
Statements of Operations................................... F-3 - F-4
Statements of Partners' Capital............................ F-5
Statements of Cash Flows................................... F-6 - F-7
Notes to Financial Statements.............................. F-8 - F-18
Information Accompanying the Basic Financial Statements
Independent Auditors' Report on Information................ F-19
Accompanying the Basic Financial Statements
Schedule of Valuation and Qualifying Accounts
and Reserves for Allowances for Doubtful Accounts........ F-20
Schedule of Consolidated Supplementary Income
Statement Information.................................... F-21
Schedule of Real Estate and Accumulated Depreciation....... F-22
</TABLE>
<PAGE> 13
[SELF, MAPLES & COPELAND, P.C. 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, 1997 and 1996 and the related statements of
operations, partners' capital and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Income Properties 2B
Limited Partnership as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Self, Maples & Copeland, P.C.
Oneonta, Alabama
January 23, 1998
F-1
<PAGE> 14
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,014,047 $ 269,249
Patient accounts receivable, net of allowance
for doubtful accounts of $0 in 1997
and $102,349 in 1996 -- 616,404
Estimated third-party payor settlements 29,964 203,628
Prepaid expense and other assets 4,472 54,122
----------- ------------
Total current assets 1,048,483 1,143,403
Investment in joint ventures 10,349,719 7,087,148
Property and equipment, net of
accumulated depreciation -- 2,855,196
Deferred financing costs, net of
accumulated amortization of
$0 in 1997 and $1,743 in 1996 -- 1,744
----------- ------------
Total assets $11,398,202 $ 11,087,491
=========== ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current maturities of long-term debt $ -- $ 63,388
Accounts payable 82,003 334,901
Accrued payroll and payroll taxes -- 73,433
Accrued vacation -- 32,722
Accrued insurance 120,000 10,657
Accrued real estate taxes -- 75,096
Accrued management fees -- 13,906
Patient deposits and trust liabilities -- 48,244
Other accrued expenses 147,821 4,949
Estimated third-party payor settlements 58,292 --
Due to affiliates 9,600,409 840,835
----------- ------------
Total current liabilities 10,008,525 1,498,131
Long-term debt, net of current maturities -- 640,309
----------- ------------
Total liabilities 10,008,525 2,138,440
----------- ------------
Partners' capital (deficit)
Limited partners 1,389,677 8,993,158
General partners -- (44,107)
----------- ------------
Total partners' capital 1,389,677 8,949,051
----------- ------------
Total liabilities and partners' capital $11,398,202 $ 11,087,491
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 15
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Net patient service revenue $ 1,672,843 $ 3,443,725 $ 3,428,541
Other revenue 2,200 4,345 4,147
----------- ----------- -----------
Total revenue 1,675,043 3,448,070 3,432,688
----------- ----------- -----------
Operating expenses
Professional care of patients 1,015,967 1,888,947 1,981,961
Dietary 117,725 276,675 265,966
Household and plant 151,734 323,317 342,433
General and administrative 636,377 853,203 716,748
Employee health and welfare 80,778 182,010 190,721
Depreciation and amortization 36,077 146,217 150,534
Lease 61,638 -- --
----------- ----------- -----------
Total operating expenses 2,100,296 3,670,369 3,648,363
----------- ----------- -----------
Operating income (loss) (425,253) (222,299) (215,675)
----------- ----------- -----------
Other income (expenses)
Interest income 113,621 -- --
Interest expense (15,886) (58,603) (92,668)
Provider fees (27,120) (65,880) (65,700)
Partnership share of joint
venture income 143,690 928,752 705,096
----------- ----------- -----------
Total other income
(expenses) 214,305 804,269 546,728
----------- ----------- -----------
Income (loss) before recognition
of property sales and loss
on discontinued operations (210,948) 581,970 331,053
Gain on sale of properties 2,475,123 -- --
Loss from discontinued operations (129,921) -- --
----------- ----------- -----------
Net income $ 2,134,254 $ 581,970 $ 331,053
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 16
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Net income attributable
to limited partners $2,081,937 $541,232 $307,879
Net income attributable
to general partners 52,317 40,738 23,174
---------- -------- --------
$2,134,254 $581,970 $331,053
========== ======== ========
Net income (loss) per limited
partnership unit outstanding:
Continuing operations $ (17.99) $ 49.62 $ 28.23
Sale of properties 219.95 -- --
Discontinued operations (11.08) -- --
---------- -------- --------
Net income (loss) per unit $ 190.88 $ 49.62 $ 28.23
========== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 17
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Partners' capital
(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 partnership
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
Distributions to
partners ($888.00 per
limited partnership
unit outstanding) -- (9,685,418) (8,210) (9,693,628)
Net income (loss) before
recognition of property
sales and loss on
discontinued operations -- (196,182) (14,766) (210,948)
Loss from discontinued
operations -- (120,827) (9,094) (129,921)
Gain on property sales -- 2,398,946 76,177 2,475,123
------- ----------- -------- -----------
Partners' capital
at December 31, 1997 $10,907 $ 1,389,677 $ -- $ 1,389,677
======= =========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 18
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patient care $ 2,521,203 $ 3,708,915 $ 3,186,524
Interest and dividends received 113,621 -- --
Other operating receipts 2,200 4,345 4,147
Cash paid to suppliers and
employees (2,269,853) (3,399,289) (3,516,545)
Interest paid (15,886) (58,603) (92,668)
Provider fees (27,120) (65,880) (65,700)
----------- ----------- -----------
Net cash provided (used) by operations 324,165 189,488 (484,242)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures -- (12,408) (52,424)
Capital contributions to joint ventures (105,000) -- --
Cash proceeds from the sale of property 8,974,614 -- --
Distributions from joint
ventures 287,277 876,302 330,905
----------- ----------- -----------
Net cash provided (used) by
investing activities 9,156,891 863,894 278,481
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on long-term
obligations (5,759) (59,300) (53,492)
Distributions to partners (9,693,628) (469,118) (469,120)
Net related party transactions 963,129 (297,078) 644,286
----------- ----------- -----------
Net cash provided (used) by financing
activities (8,736,258) (825,496) 121,674
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 744,798 227,886 (84,087)
Cash and cash equivalents, beginning
of year 269,249 41,363 125,450
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,014,047 $ 269,249 $ 41,363
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 19
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 2,134,254 $ 581,970 $ 331,053
----------- --------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 36,077 146,217 150,534
Partnership share of joint
venture income (143,690) (928,752) (705,096)
Provision for losses on accounts
receivable 106,747 15,177 7,625
(Gain) loss on disposal of property (2,475,123) -- --
(Increase) decrease in:
Patient accounts receivable, net 509,657 148,657 130,735
Estimated third-party payor
settlements 173,664 113,334 (258,259)
Prepaid expenses and other assets 9,770 (11,978) 23,537
Increase (decrease) in:
Accounts payable (253,608) 99,749 26,905
Accrued expenses 195,803 13,880 (74,560)
Estimated third-party payor
settlements 58,292 -- (122,118)
Other liabilities (27,678) 11,234 5,402
----------- --------- ---------
Total adjustments (1,810,089) (392,482) (815,295)
----------- --------- ---------
Net cash provided (used) by
operating activities $ 324,165 $ 189,488 $(484,242)
=========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-7
<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.
As described in Note 12, the Partnership has sold all its
fixed and operating assets and is in the process of
liquidating the remainder of its assets for distribution to
the partners and subsequent dissolution.
(b) Allocation of Net Profits and Net Losses
Net profits and net losses shall be determined and allocated
as of December 31 of each year, as follows:
- Net profits (losses) (exclusive of net profits
(losses) attributable to the sale or disposition of
Partnership properties) are allocated 93% to the
limited partners and 7% to the general partners.
- Net profits attributable to the sale or disposition
of a Partnership property shall be allocated as
follows:
- First, to limited partners with negative
balances in their capital accounts in
proportion to such negative balances, to the
extent of the total of such negative
balances;
- Second, 1% to the general partners and 99%
to the limited partners until the capital
account of each
F-8
<PAGE> 21
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
limited partner is equal to his capital
investment; and
- Third, the balance, if any, 85% to the
limited partners and 15% to the general
partners.
- Net losses attributable to the sale or disposition of
a Partnership property shall be allocated in a manner
similar to above, except that limited and general
partner accounts would be reduced pro rata to the
amount of their respective capital investments, then,
pro rata to zero, and for any remaining loss, 93% to
the limited partners and 7% to the general partners.
(c) Cash Distributions
Cash distributions shall be made quarterly within 45 days
after the end of the quarter. Cash flow shall be distributed
93% to the limited partners and 7% to the general partners.
Sale or financing proceeds shall be distributed first to
creditors and then to the limited partners to the extent of
their original capital contribution and then the remainder
shall be distributed 85% to the limited partners and 15% to
the general partners.
(d) Per Unit Information
Limited partnership information per unit is based on the
number of units outstanding of 10,907 in 1997, 1996, and 1995.
(e) Patient Service Revenue
Patient service revenue is recorded at the nursing homes'
established rates with contractual adjustments ($1,222,156 in
1997, $1,888,312 in 1996, and $1,832,743 in 1995), provision
for uncollectible accounts, (bad debt expense of $106,747 in
1997, $15,177 in 1996, and $7,625 in 1995) and other discounts
deducted to arrive at net patient service revenue.
Net patient revenue includes amounts estimated by management
to be reimbursable by Medicare, Medicaid and other third-party
programs under the provisions of cost and prospective payment
reimbursement formulas in effect. Amounts received under these
programs are generally less than the established billing rates
of the nursing homes and the difference is reported as a
contractual adjustment and deducted from gross revenue.
The nursing homes recognize currently estimated final
settlements due from or to third party programs. Final
determination of amounts earned is subject to audit by the
F-9
<PAGE> 22
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
intermediaries. Differences between estimated provisions and
final settlement will be reflected as charges or credits to
operating revenues in the year the cost reports are finalized.
(f) Property and Equipment
Property and equipment 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
$1,058,170 (inclusive of unconsolidated joint ventures) at
December 31, 1997.
(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-10
<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, 1997 and 1996 and operating statement
information for each of the years in the three-year period ending
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Katy 1997 1996
- ---- ---------- ----------
<S> <C> <C>
Current assets $ 905,555 $2,501,874
Long-term assets 7,017,221 4,771,630
---------- ----------
Total assets $7,922,776 $7,273,504
========== ==========
Current liabilities 192,769 860,008
Equity 7,730,007 6,413,496
---------- ----------
Total liabilities
and equity $7,922,776 $7,273,504
========== ==========
Partnership's investment
at December 31,
1997 and 1996 $3,865,004 $3,206,748
========== ==========
</TABLE>
F-11
<PAGE> 24
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Katy (con't.)
- ----
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $2,301,862 $5,039,616 $4,985,129
Gain on sale 1,056,481 -- --
Expenses 2,227,982 4,385,765 4,362,005
---------- ---------- ----------
Net income $1,130,361 $ 653,851 $ 623,124
========== ========== ==========
<CAPTION>
Humble 1997 1996
- ------ ---------- ----------
<S> <C> <C>
Current assets $ 894,188 $1,498,372
Long-term assets 4,250,593 3,377,314
---------- ----------
Total assets $5,144,781 $4,875,686
========== ==========
Current liabilities 264,265 677,478
Long-term liabilities -- 631,250
Equity 4,880,516 3,566,958
---------- ----------
Total liabilities
and equity $5,144,781 $4,875,686
========== ==========
Partnership's investment
at December 31,
1997 and 1996 $2,440,258 $1,783,479
========== ==========
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $1,861,707 $4,415,307 $3,664,088
Gain on sale 1,195,281 -- --
Expenses 1,719,582 3,954,042 3,526,809
---------- ---------- ----------
Net income $1,337,406 $ 461,265 $ 137,279
========== ========== ==========
<CAPTION>
Medical Park 1997 1996
- ------------ ---------- ----------
<S> <C> <C>
Current assets $ 246,970 $1,699,553
Long-term assets 9,029,540 5,369,994
---------- ----------
Total assets $9,276,510 $7,069,547
========== ==========
Current liabilities $ 372,943 $ 743,586
Long-term liabilities -- 1,704,860
Equity 8,903,567 4,621,101
---------- ----------
Total liabilities
and equity $9,276,510 $7,069,547
========== ==========
</TABLE>
F-12
<PAGE> 25
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Medical Park (con't.)
- ---------------------
<S> <C> <C>
Partnership's investment
at December 31,
1997 and 1996 $4,047,063 $2,100,682
========== ==========
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $2,770,379 $6,396,385 $5,907,763
Gain on sale 4,786,089 -- --
Expenses 2,691,860 5,579,678 5,192,923
---------- ---------- ----------
Net income $4,864,608 $ 816,707 $ 714,840
========== ========== ==========
</TABLE>
See Note 9 for contingency.
Note 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -----------
<S> <C> <C>
Land $ -- $ 90,000
Buildings and improvements -- 3,812,869
Furniture and equipment -- 302,317
------- -----------
Total -- 4,205,186
Accumulated depreciation
and amortization -- (1,349,990)
------- -----------
Net property and equipment $ -- $ 2,855,196
======= ===========
</TABLE>
Note 5. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Industrial Revenue Bonds payable at
a variable rate of interest (7.755%
at December 31, 1996) with monthly
principal and interest payments
of $9,645. The interest rate is
adjusted every May 1 and November 1,
secured by real estate. $ -- $703,697
Less amounts due in one year
or less -- 63,388
------- --------
$ -- $640,309
======= ========
</TABLE>
F-13
<PAGE> 26
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 6. RELATED PARTY TRANSACTIONS
QualiCorp, Inc. charged the Partnership $114,771 in 1997, $84,896 in
1996, and $80,278 in 1995 for administrative expenses (primarily
salaries). QualiCorp, Inc. also charged the Partnership $55,539 in 1997
and $132,974 in 1996 for property management fees.
Details of the amounts due to affiliates at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Due to QualiCorp, Inc. $ 14,468 $156,787
Due to The Texas Joint Venture -
Katy 3,508,610 184,075
Humble 2,125,296 26,556
Due to The Alabama Joint Venture -
Medical Park 3,665,680 473,417
Due to MIP 2A 286,355 --
---------- --------
Due to affiliates $9,600,409 $840,835
========== ========
</TABLE>
The Articles of Limited Partnership of the partnerships involved state
that no General Partner shall have the authority to cause those
partnerships to make loans other than in connection with the purchase,
sale or disposition of partnership property. The Articles of Limited
Partnership of those partnerships also state that the partnerships'
funds may not be commingled with any other entities' funds except as
necessary for the operation of those partnerships.
At December 31, 1996, the Partnership had borrowed $286,355 from the
other entities.
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.
F-14
<PAGE> 27
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Net income as reported $2,134,254 $581,970 $331,053
Adjustments:
Depreciation differences 8,779 17,720 41,967
Gain on sale 3,116 -- --
Bad debt reserve (173,224) 33,238 46,191
Vacation accrual (124,448) 14,263 15,019
Insurance deductible -- -- (51,636)
Nondeductible travel
and entertainment 6,507 14,080 16,165
---------- -------- --------
Federal taxable income $1,854,984 $661,271 $398,759
========== ======== ========
Federal taxable income
per limited partnership
unit outstanding $ 165.28 $ 56.38 $ 34.00
========== ======== ========
</TABLE>
Note 8. CONTRACTUAL AGREEMENTS
In 1988, the Partnership entered into a management agreement whereby
the Manager was required to perform certain services. The agreement had
an initial five-year term with one additional five-year option that was
exercised in 1993. Fees were based on 6% of gross collected operating
revenues through June 30, 1992. Thereafter they were based on 5% of
gross collected operating revenues, but not less than $140,000 in a
calendar year and were increased by an inflation factor after 1992. The
Manager had a right of first refusal to match a bona fide offer made by
an outside party to purchase or lease the nursing home. The management
agreement, as amended, contained a termination clause.
The management agreement was amended on January 1, 1995. The amendment
called for a fixed monthly management fee of $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
F-15
<PAGE> 28
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
above would be discounted to the date of termination at an annual rate
of ten percent (10%) and then further discounted by a factor of
thirty-three and one-third percent (33 1/3%). The sale as described in
Note 12 includes the terminating settlement.
Management fees charged to the partnership were $72,026 in 1997,
$166,875 in 1996, and $160,456 in 1995.
Pursuant to the sales agreement described in Note 12, on April 1, 1997,
the Partnership entered into a triple net lease with Omega HealthCare
Investors, Inc. (Omega) to lease all of the properties the Partnership
had previously sold to Omega. The lease expired on December 31, 1997
subject to various extension/termination rights of the Lessor. The
Lessor exercised its option to terminate the lease on May 31, 1997. The
lease payment was based on a fixed amount of base rent plus the net of
the remainder of gross revenue over operating expenses. The base rental
lease expense for the two months was $52,476 and gross revenue was
$9,162 in excess of operating expense for the same period. Total
operating lease expense was $61,638.
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.
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, 1997, 1996, and 1995 is as follows:
F-16
<PAGE> 29
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Private pay patients 8.12% 12.05% 11.34%
Medicaid 37.66% 48.03% 47.47%
Medicare 54.22% 39.92% 41.19%
------ ------ ------
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:
The financial instruments of the Company are short-term assets
and liabilities whose carrying amounts reported in the balance
sheet approximate fair value. These items include cash,
accounts receivable and accounts payable.
Note 12. SALE OF ASSETS
On February 3, 1997, Medical Income Properties 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.
F-17
<PAGE> 30
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The purchase price was 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 were reduced by expenses incurred as a result
of the sale, cash offsets for liabilities assumed by the buyer and
existing indebtedness. These payments approximated $3,400,000. They
included $937,411 for termination of the management agreement as
explained in Note 8.
The closing took place on March 31, 1997. Approximately $413,350 of
these proceeds were set aside in a joint signature account for the
purpose of securing all of the seller's obligations under the
purchase agreement. These funds will be available to the Partnership
in the event that these obligations do not exceed the funds held in
escrow.
As described in Note 8, the Partnership continued to operate the
nursing homes until May 31, 1997.
In conjunction with the above sale, Omega HealthCare Investors, Inc.
agreed to a similar purchase of assets from RWB Medical Properties
Limited Partnership IV, of which an officer of QualiCorp, Inc. owns
either directly or indirectly a 21.53% interest. This sale related to
a 131 bed nursing home in Patterson, Louisiana and the purchase price
for the assets was $5,350,000.
F-18
<PAGE> 31
[SELF, MAPLES & COPELAND, P.C. 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 1997 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 & Copeland, P.C.
Oneonta, Alabama
January 23, 1998
F-19
<PAGE> 32
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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- -------
<S> <C> <C> <C>
Balance at beginning of year $ 102,349 $ 54,188 $35,327
Charged to patient service
revenues (209,096) 32,984 11,236
Write-offs 106,747 15,177 7,625
--------- -------- -------
Balance at end of year $ -- $102,349 $54,188
========= ======== =======
</TABLE>
F-20
<PAGE> 33
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
SCHEDULE X
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ----------
<S> <C> <C> <C>
Professional care of patients
Nursing salaries and wages $426,414 $986,150 $1,016,764
Ancillary service expense 455,646 678,357 713,913
Supplies 54,922 89,576 108,192
Temporary labor 18,838 939 8,423
General and administrative
Salaries and wages 46,422 93,837 87,897
Accounting and auditing 23,470 46,552 42,807
Insurance 179,013 150,623 161,912
Property tax 30,534 73,649 76,239
Management fees 72,026 166,875 160,456
Property management fees 55,539 132,974 --
Cost reimbursement 114,771 84,896 80,278
Dietary
Food cost 57,496 134,948 128,930
Household and plant
Repairs and maintenance 15,110 10,212 23,852
Utilities 52,501 126,040 120,078
Depreciation $ 36,023 $145,999 $ 150,316
======== ======== ==========
</TABLE>
F-21
<PAGE> 34
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED GROSS AMOUNT AT WHICH CARRIED
TO PARTNERSHIP(A) SUBSEQUENT TO AS OF DISPOSITION DATE(B)
ACQUISITION
BUILDING AND CARRYING BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS TOTAL
- ------------------- ------------ ------- ------------ ------------ -------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EDWARDSVILLE - EAST $ 0 $90,000 $ 3,660,000 $178,591 $276,595 $90,000 $4,115,186 $4,205,186
============ ======= =========== ======== ======== ======= ========== ==========
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
ACCUMULATED DATE OF DATE OPERATION IS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
- ------------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
EDWARDSVILLE - EAST $ 1,386,013 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 the date of disposition for
Federal Income tax purposes was approximately $4,140,355.
(C) Reconciliation of real estate owned at December 31, 1997, 1996, and
1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period $4,205,186 $4,192,779 $4,140,355
Additions 0 12,407 52,424
Reductions 4,205,186 0 0
---------- ---------- ----------
Balance at end of period $ 0 $4,205,186 $4,192,779
========== ========== ==========
</TABLE>
(D) Reconciliation of accumulated depreciation:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of period $1,349,990 $1,203,992 $1,053,675
Depreciation expense 36,023 145,998 150,317
Reductions 1,386,013 0 0
---------- ---------- ----------
Balance at end of period $ 0 $1,349,990 $1,203,992
========== ========== ==========
</TABLE>
F-22
<PAGE> 35
THE ALABAMA JOINT VENTURE
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<PAGE> 36
THE ALABAMA JOINT VENTURE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................. F-1
Financial Statements
Balance Sheets......................................... F-2
Statements of Operations............................... F-3
Statements of Partners' Capital........................ F-4
Statements of Cash Flows............................... F-5 - F-6
Notes to Financial Statements.......................... F-7 - F-14
Information Accompanying the Basic Financial Statements
Independent Auditors' Report on Information............ F-15
Accompanying the Basic Financial Statements
Schedule of Valuation and Qualifying Accounts
and Reserves for Allowances for Doubtful Accounts.... F-16
Schedule of Supplementary Income
Statement Information................................ F-17
Schedule of Real Estate and Accumulated Depreciation... F-18
</TABLE>
<PAGE> 37
[SELF, MAPLES & COPELAND, P.C. 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, 1997 and 1996 and the related statements of operations, partners' capital
and cash flows for each of the three years in the three-year period ended
December 31, 1997. These financial statements are the responsibility of the
Joint Venture's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Alabama Joint Venture as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for each of the three years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Self, Maples & Copeland, P.C.
Oneonta, Alabama
January 23, 1998
F-1
<PAGE> 38
THE ALABAMA JOINT VENTURE
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 91,297 $ 491,979
Marketable securities -- 250,100
Patient accounts receivable, net of
allowance for doubtful accounts of
$0 in 1997 and $38,502 in 1996 -- 511,724
Interest receivable -- 1,320
Estimated third-party payor settlements 148,226 429,090
Prepaid expenses and other assets 7,447 15,340
---------- ----------
Total current assets 246,970 1,699,553
Property and equipment, net of accumulated
depreciation and amortization -- 4,383,681
Due from affiliates 9,029,540 980,471
Deferred financing costs, net of
accumulated amortization of $0
in 1997 and $14,780 in 1996 -- 5,842
---------- ----------
Total assets $9,276,510 $7,069,547
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current maturities of long-term debt $ -- $ 163,667
Accounts payable -- 254,902
Accrued payroll and payroll taxes -- 86,000
Accrued vacation -- 86,243
Accrued insurance -- 8,489
Accrued management fees -- 24,833
Estimated third-party payor settlements 372,943 58,291
Patient deposits and trust liabilities -- 39,668
Other accrued expenses -- 21,493
---------- ----------
Total current liabilities 372,943 743,586
Long-term debt, net of current maturities -- 1,704,860
---------- ----------
Total liabilities 372,943 2,448,446
---------- ----------
Partners' capital 8,903,567 4,621,101
---------- ----------
Total liabilities and partners' capital $9,276,510 $7,069,547
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 39
THE ALABAMA JOINT VENTURE
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Net patient service revenue $ 2,733,185 $ 6,393,242 $ 5,903,666
Other revenue 1,309 3,143 4,097
----------- ----------- -----------
Total revenue 2,734,494 6,396,385 5,907,763
----------- ----------- -----------
Operating expenses
Professional care of
patients 1,396,400 3,025,669 2,698,179
Dietary 214,700 517,954 479,390
Household and plant 222,241 483,065 476,219
General and administrative 267,785 753,975 727,852
Employee health and welfare 113,185 253,917 236,830
Depreciation and
amortization 57,755 232,160 252,043
Lease 296,918 -- --
----------- ----------- -----------
Total operating expenses 2,568,984 5,266,740 4,870,513
----------- ----------- -----------
Operating income 165,510 1,129,645 1,037,250
----------- ----------- -----------
Other income (expenses)
Interest income 35,885 54,842 72,267
Interest expense (46,629) (184,787) (211,684)
Provider fees (76,247) (182,993) (182,993)
----------- ----------- -----------
Total other income
(expenses) (86,991) (312,938) (322,410)
----------- ----------- -----------
Income before recognition
of property sales 78,519 816,707 714,840
Gain on sale of properties 4,786,089 -- --
----------- ----------- -----------
Net income $ 4,864,608 $ 816,707 $ 714,840
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 40
THE ALABAMA JOINT VENTURE
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
MEDICAL INCOME PROPERTIES
LIMITED PARTNERSHIPS
-----------------------------
2A 2B TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at
December 31, 1994 $ 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
Distributions to
partners (317,790) (264,776) (582,566)
Income before recognition
of property sales 42,832 35,687 78,519
Gain on sale of properties 2,610,812 2,175,277 4,786,089
Unrealized gain on
marketable securities
available for sale 231 193 424
----------- ----------- -----------
Partners' capital at
December 31, 1997 $ 4,856,504 $ 4,047,063 $ 8,903,567
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 41
THE ALABAMA JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patient care $ 3,840,425 $ 6,600,341 $ 5,201,651
Interest received 37,729 58,042 69,594
Other operating receipts 1,309 3,143 4,097
Cash paid to suppliers and
employees (2,961,694) (5,052,207) (4,479,328)
Interest paid (46,629) (184,787) (211,684)
Provider fees (76,247) (182,993) (182,993)
----------- ----------- -----------
Net cash provided (used) by operations 794,893 1,241,539 401,337
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (11,441) (238,835) (130,636)
Purchases of marketable securities -- -- (252,099)
Maturities of marketable securities 250,000 700,000 293,993
----------- ----------- -----------
Net cash provided (used) by investing
activities 238,559 461,165 (88,742)
----------- ----------- -----------
Cash flows from financing activities:
Payments on long-term debt and
lease obligations (12,255) (163,667) (165,037)
Distributions to partners (582,566) (1,290,000) (90,000)
Net related party transactions (839,313) (54,679) (160,872)
----------- ----------- -----------
Net cash provided (used) by
financing activities (1,434,134) (1,508,346) (415,909)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (400,682) 194,358 (103,314)
Cash and cash equivalents, beginning
of year 491,979 297,621 400,935
----------- ----------- -----------
Cash and cash equivalents, end of year $ 91,297 $ 491,979 $ 297,621
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 42
THE ALABAMA JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 4,864,608 $ 816,707 $ 714,840
----------- ----------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 57,755 232,160 252,043
Provision for losses on accounts
receivable (6,996) 33,872 32,956
(Gain) loss on disposal of property (4,786,089) -- --
(Increase) decrease in:
Patient accounts receivable, net 518,720 98,202 (253,138)
Interest receivable, securities
premium amortization, and
securities discount accretion 1,844 3,200 54
Estimated third-party payor
settlements 280,864 16,734 (413,954)
Prepaid expenses and other assets (82,522) 10,310 29,869
Increase (decrease) in:
Accounts payable (254,902) (62,979) 158,732
Accrued expenses (88,916) 27,161 (56,318)
Estimated third-party payor
settlements 314,652 58,291 (70,606)
Other liabilities (24,125) 7,881 6,859
----------- ----------- ---------
Total adjustments (4,069,715) 424,832 (313,503)
----------- ----------- ---------
Net cash provided (used) by operations $ 794,893 $ 1,241,539 $ 401,337
=========== =========== =========
Supplemental schedule of noncash investing
and financing activities:
Unrealized (gain) loss on marketable
securities available for sale $ (424) $ 3,108 $ (20,063)
=========== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 43
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 owned and operated
one nursing home in Alabama.
As described in Note 11, the Partnership has sold all its
fixed and operating assets and is in the process of
liquidating the remainder of its assets for distribution to
the partners and subsequent dissolution.
(b) Allocation of Net Profits and Net Losses
Net profits and net losses are shared 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 ($931,191 in
1997, $1,615,337 in 1996 and $1,536,130 in 1995), provision
for uncollectible accounts, (bad debt expense (recovery) of
($6,996) in 1997, $33,872 in 1996 and $32,956 in 1995) 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
F-7
<PAGE> 44
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
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 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. The amount in excess of insured limits was
approximately $359,216 at December 31, 1996.
(i) Marketable Securities
The classification of marketable securities is determined at
the date of purchase. Gains or losses on the sale of
securities are recognized on a specific identification basis.
Marketable securities represent an investment of excess funds
as a part of the Joint Venture's cash management policies.
These securities are considered to be available for sale under
F-8
<PAGE> 45
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
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.
(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 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, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Beginning balance, at amortized cost $ 250,524 $ 952,829
Redemption of investments (250,000) (700,000)
Net amortization of premiums and
accretion of discounts (524) (2,305)
--------- ---------
Amortized cost -- 250,524
Gross unrealized gain (loss) -- (424)
--------- ---------
Fair value $ -- $ 250,100
========= =========
</TABLE>
F-9
<PAGE> 46
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>
1997 1996
------- -----------
<S> <C> <C>
Land $ -- $ 400,000
Buildings and improvements -- 5,473,692
Furniture and equipment -- 585,827
Total -- 6,459,519
Accumulated depreciation
and amortization -- (2,075,838)
------- -----------
Net property and equipment $ -- $ 4,383,681
======= ===========
</TABLE>
Note 5. LONG-TERM DEBT
Long-term at debt December 31 was as follows:
<TABLE>
<CAPTION>
1997 1996
------- ----------
<S> <C> <C>
Mortgage notes with interest
at prime plus 1% (9.25% at
December 31, 1996) payable
in 60 payments of $13,639 plus
interest $ -- $1,868,527
Less amounts due in one year
or less -- 163,667
------- ----------
$ -- $1,704,860
======= ==========
</TABLE>
The mortgage note was 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 had guaranteed the debt, as well as pledged
its stock and partnership interest. The management company (See Note 6)
had also guaranteed the debt and entered into a negative pledge
agreement whereby it would not pledge, transfer or encumber its stock
while the loan was outstanding. All management fees are subordinate to
the debt. The loan document contained restrictive covenants associated
with ratio and earnings requirements. Management is not aware of any
conditions that existed that would have caused them to be in
noncompliance with these requirements.
F-10
<PAGE> 47
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
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
were subordinated to the outstanding mortgage debt (See Note 5). The
Manager had a right of first refusal to match a bona fide offer made by
an outside party to purchase or lease the nursing home. The management
agreement, as amended, contained a termination clause.
The management agreement was amended on January 1, 1995. The amendment
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%). The sale, as described in Note 11,
includes the terminating settlement.
Management fees charged to the Joint Venture were $122,816 in 1997,
$297,990 in 1996, and $286,529 in 1995.
Pursuant to the sales agreement described in Note 11, on April 1, 1997,
the Partnership entered into a triple net lease with Omega HealthCare
Investors, Inc. (Omega) to lease all of the properties the Partnership
had previously sold to Omega. The lease expired on December 31, 1997
subject to various extension/termination rights of the Lessor. The
lessor exercised its option to terminate the lease on May 31, 1997. The
lease payment was based on a fixed amount of base rent plus the net of
the remainder of gross revenue over operating expenses. The base rental
lease expense for the two
F-11
<PAGE> 48
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
months was $219,112 and gross revenue was $77,806 in excess of
operating expense for the same period. Total operating lease expense
was $296,918.
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>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Net income as reported $ 4,864,608 $ 816,707 $ 714,840
Adjustments:
Gain on sale 34,953 -- --
Depreciation differences 1,009 (1,935) 27,157
Bad debt reserve (38,502) (4,182) (23,316)
Nondeductible travel and
entertainment 364 3,407 2,534
Accrued insurance -- -- (8,000)
Vacation accrual (86,246) 14,429 1,204
----------- --------- ---------
Federal taxable income $ 4,776,186 $ 828,426 $ 714,419
=========== ========= =========
</TABLE>
Note 8. RELATED PARTY TRANSACTIONS
Amounts due from affiliates at December 31 are stated as follows:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Due from MIP2A $5,363,860 $507,054
Due from MIP2B 3,665,680 473,417
---------- --------
Due from affiliates $9,029,540 $980,471
========== ========
</TABLE>
See Footnote 11 for sale of affiliated assets.
Note 9. 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
F-12
<PAGE> 49
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
the Joint Venture's income from each of these sources for the years
ended December 31, 1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Patients and sponsors 10.58% 10.28% 14.25%
Medicaid 49.90% 55.54% 49.53%
Medicare 39.52% 34.18% 36.22%
------ ------ ------
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 10. 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:
The 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 11. SALE OF ASSETS
On February 3, 1997, Medical Income Properties 2A Limited Partnership
and Medical Income Properties 2B Limited Partnership, the general
partners of The 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.
F-13
<PAGE> 50
THE ALABAMA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
The purchase price allocated to Medical Park was $9,950,000. The
closing took place on March 31, 1997. Approximately $362,000 of these
proceeds were set aside in a joint signature account for the purpose of
securing all of the seller's obligations under the purchase agreement.
These funds are being held by the general partners and will be
available to the Partnership in the event that these obligations do not
exceed the funds held in escrow.
Proceeds from the sale were reduced by expenses incurred as a result of
the sale, cash offsets for liabilities assumed by the buyer and
existing indebtedness. These payments appoximated $2,658,000. They
included $560,792 for termination of the management agreement as
explained in Note 6.
As described in Note 6, the Partnership continued to operate the
nursing home until May 31, 1997.
In conjunction with the above sale, Omega HealthCare Investors, Inc.
had agreed to a similar purchase of assets from RWB Medical Properties
Limited Partnership IV, of which an officer of QualiCorp, Inc. owns
either directly or indirectly a 21.53% interest. This sale related to a
131 bed nursing home in Patterson, Louisiana and the purchase price for
the assets was $5,350,000.
F-14
<PAGE> 51
[SELF, MAPLES & COPELAND, P.C. 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 1997 appears on page 1. Those audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
Schedule of Valuation and Qualifying Accounts and Reserves for Allowances for
Doubtful Accounts, Schedule of Consolidated Supplementary Income Statement
Information, and Schedule of Real Estate and Accumulated Depreciation are
presented for purposes of additional analysis and are not required parts of the
basic financial statements. Such information has been subjected to the auditing
procedures applied to the audits of the basic financial statements, and in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Self, Maples & Copeland, P.C.
Oneonta, Alabama
January 23, 1998
F-15
<PAGE> 52
THE ALABAMA JOINT VENTURE
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $ 38,502 $ 42,684 $ 66,000
Charged to patient service
revenue (31,506) (38,054) (56,272)
Write-offs and (recoveries) (6,996) 33,872 32,956
-------- -------- --------
Balance at end of year $ -- $ 38,502 $ 42,684
======== ======== ========
</TABLE>
F-16
<PAGE> 53
THE ALABAMA JOINT VENTURE
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Professional care of patients
Salaries and wages $ 783,014 $1,808,353 $1,657,908
Ancillary service expense 466,673 851,387 629,505
Supplies 41,222 109,716 123,550
General and administrative
Salaries and wages 83,169 121,619 118,380
Accounting and auditing 33,040 58,340 49,491
Insurance (20,713) 180,348 155,990
Property tax 11,110 25,496 25,491
Management fees 122,816 297,990 286,529
Dietary
Food cost 96,623 252,802 228,560
Household and plant
Repairs and maintenance 16,426 30,625 52,658
Utilities 54,233 128,941 112,945
Depreciation $ 56,724 $ 228,035 $ 247,918
========= ========== ==========
</TABLE>
F-17
<PAGE> 54
THE ALABAMA JOINT VENTURE
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED GROSS AMOUNT AT WHICH CARRIED
TO PARTNERSHIP(A) SUBSEQUENT TO AS OF DISPOSITION DATE(B)
ACQUISITION
BUILDING AND CARRYING BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS TOTAL
- --------------- ------------ -------- ------------ ------------ -------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MEDICAL PARK $0 $400,000 $4,700,000 $991,688 $379,272 $400,000 $6,070,960 $6,470,960
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
ACCUMULATED DATE OF DATE OPERATION IS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
- --------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
MEDICAL PARK $2,132,562 1967 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 the date of disposition for
Federal Income tax purposes was approximately $6,452,659.
(C) Reconciliation of real estate owned at December 31, 1997, 1996, and
1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period $6,459,519 $6,220,684 $6,090,048
Additions 11,441 238,835 130,636
Reductions 6,470,960 0 0
---------- ---------- ----------
Balance at end of period $ 0 $6,459,519 $6,220,684
========== ========== ==========
</TABLE>
(D) Reconciliation of accumulated depreciation:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of period $2,075,838 $1,847,803 $1,594,024
Depreciation expense 56,724 228,035 253,779
Reductions 2,132,562 0 0
---------- ---------- ----------
Balance at end of period $ 0 $2,075,838 $1,847,803
========== ========== ==========
</TABLE>
F-18
<PAGE> 55
THE TEXAS JOINT VENTURE
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<PAGE> 56
THE TEXAS JOINT VENTURE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................. F-1
Financial Statements
Balance Sheets......................................... F-2
Statements of Operations............................... F-3
Statements of Partners' Capital........................ F-4
Statements of Cash Flows............................... F-5 - F-6
Notes to Financial Statements.......................... F-7 - F-14
Information Accompanying the Basic Financial Statements
Independent Auditors' Report on Information
Accompanying the Basic Financial Statements.......... F-15
Schedule of Valuation and Qualifying Accounts
and Reserves for Allowances for Doubtful Accounts.... F-16
Schedule of Consolidated Supplementary Income
Statement Information................................ F-17
Schedule of Real Estate and Accumulated Depreciation... F-18
</TABLE>
<PAGE> 57
[SELF, MAPLES & COPELAND, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
The Texas Joint Venture
We have audited the balance sheets of The Texas Joint Venture as of December 31,
1997 and 1996 and the related statements of operations, partners' capital and
cash flows for each of the three years in the three-year period ended December
31, 1997. These financial statements are the responsibility of the Joint
Venture's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Texas Joint Venture as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for each of the three years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Self, Maples & Copeland, P.C.
Oneonta, Alabama
January 23, 1998
F-1
<PAGE> 58
THE TEXAS JOINT VENTURE
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,158 $ 770,794
Marketable securities 1,755,480 2,190,840
Patient accounts receivable, net of allowance
for doubtful accounts of $5,301
in 1997 and $106,750 in 1996 25,678 849,065
Interest receivable 14,889 16,304
Estimated third-party payor settlements -- 137,964
Prepaid expenses and other assets 1,538 35,279
----------- -----------
Total current assets 1,799,743 4,000,246
Property and equipment, net of
accumulated depreciation -- 7,718,372
Due from affiliates 11,267,814 423,087
Deferred financing costs, net of
accumulated amortization of
$0 in 1997 and $18,935 in 1996 -- 7,485
----------- -----------
Total assets $13,067,557 $12,149,190
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current maturities of long-term debt $ -- $ 60,600
Accounts payable 20,932 697,963
Accrued payroll and payroll taxes -- 164,591
Accrued vacation -- 105,438
Accrued insurance 200,000 200,788
Accrued management fees -- 32,634
Estimated third-party payor settlements 236,102 149,694
Patient deposits and trust liabilities -- 97,367
Other accrued expenses -- 28,411
----------- -----------
Total current liabilities 457,034 1,537,486
Long-term debt, net of current maturities -- 631,250
----------- -----------
Total liabilities 457,034 2,168,736
----------- -----------
Partners' capital 12,610,523 9,980,454
----------- -----------
Total liabilities and partners' capital $13,067,557 $12,149,190
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 59
THE TEXAS JOINT VENTURE
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Net patient service revenue $ 4,040,739 $ 9,325,900 $ 8,647,019
Other revenue 607 2,102 2,198
----------- ----------- -----------
Total revenue 4,041,346 9,328,002 8,649,217
----------- ----------- -----------
Operating expenses
Professional care of
patients 2,290,880 4,966,189 4,812,691
Dietary 268,940 628,473 616,733
Household and plant 267,464 637,129 618,775
General and administrative 640,509 1,248,000 1,063,756
Employee health and welfare 154,428 350,952 355,508
Depreciation and
amortization 111,244 440,475 450,189
Lease 193,849 -- --
----------- ----------- -----------
Total operating expenses 3,927,314 8,271,218 7,917,652
----------- ----------- -----------
Operating income 114,032 1,056,784 731,565
----------- ----------- -----------
Other income (expenses)
Interest income 122,223 126,921 107,160
Interest expense (20,250) (68,589) (78,322)
----------- ----------- -----------
Total other income (expense) 101,973 58,332 28,838
----------- ----------- -----------
Income before recognition
of property sales 216,005 1,115,116 760,403
Gain on sale of properties 2,251,762 -- --
----------- ----------- -----------
Net income $ 2,467,767 $ 1,115,116 $ 760,403
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 60
THE TEXAS JOINT VENTURE
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
MEDICAL INCOME PROPERTIES
LIMITED PARTNERSHIPS
--------------------
2A 2B TOTAL
----------- ----------- ------------
<S> <C> <C> <C>
Partners' capital at
December 31, 1994 $ 4,614,504 $ 4,614,503 $ 9,229,007
Distributions to
partners (290,000) (290,000) (580,000)
Net income 380,202 380,201 760,403
Unrealized gain on
marketable securities
available for sale 17,699 17,700 35,399
----------- ----------- ------------
Partners' capital at
December 31, 1995 4,722,405 4,722,404 9,444,809
Distributions to
partners (290,000) (290,000) (580,000)
Net income 557,558 557,558 1,115,116
Unrealized gain on
marketable securities
available for sale 264 265 529
----------- ----------- ------------
Partners' capital at
December 31, 1996 4,990,227 4,990,227 9,980,454
Capital contribution 105,000 105,000 210,000
Distributions to
partners (22,500) (22,500) (45,000)
Income before recognition
of property sales 108,003 108,002 216,005
Gain on sale of properties 1,125,881 1,125,881 2,251,762
Unrealized loss on
marketable securities
available for sale (1,349) (1,349) (2,698)
----------- ----------- ------------
Partners' capital at
December 31, 1997 $ 6,305,262 $ 6,305,261 $ 12,610,523
=========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 61
THE TEXAS JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patient care $ 5,088,498 $ 9,416,614 $ 8,404,007
Interest received 56,300 77,586 91,364
Other operating receipts 607 2,102 2,198
Cash paid to suppliers and
employees (4,682,628) (7,831,212) (7,362,426)
Interest paid (20,250) (68,589) (78,322)
----------- ----------- -----------
Net cash provided (used) by operations 442,527 1,596,501 1,056,821
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (52,577) (43,430) (301,045)
Purchases of marketable securities -- (1,642,784) (503,438)
Maturities of marketable securities 500,000 900,000 500,000
----------- ----------- -----------
Net cash provided (used) by investing
activities 447,423 (786,214) (304,483)
----------- ----------- -----------
Cash flows from financing activities:
Payments on long-term debt and
lease obligations (5,073) (60,600) (65,177)
Distributions to partners (45,000) (580,000) (580,000)
Capital contributions from partners 210,000 -- --
Net related party transactions (1,818,513) 153,911 (410,680)
----------- ----------- -----------
Net cash provided (used) by financing
activities (1,658,586) (486,689) (1,055,857)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents (768,636) 323,598 (303,519)
Cash and cash equivalents, beginning
of year 770,794 447,196 750,715
----------- ----------- -----------
Cash and cash equivalents, end of year $ 2,158 $ 770,794 $ 447,196
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 62
THE TEXAS JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 2,467,767 $ 1,115,116 $ 760,403
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 111,244 440,475 450,189
Provision for losses on accounts
receivable 44,396 41,582 108,332
(Gain) loss on disposal of property (2,251,762) -- --
(Increase) decrease in:
Patient accounts receivable, net 778,991 (173,095) (185,722)
Interest receivable, securities
premium amortization and
securities discount accretion (65,923) (49,335) (4,283)
Estimated third-party payor
settlements 137,964 64,280 (177,135)
Prepaid expenses and other assets (71,647) 8,253 4,746
Increase (decrease) in:
Accounts payable (677,031) 109,738 37,306
Accrued expenses (96,789) (90,569) 66,161
Estimated third-party payor
settlements 86,408 149,694 --
Other liabilities (21,091) (19,638) (3,176)
----------- ----------- -----------
Total adjustments (2,025,240) 481,385 296,418
----------- ----------- -----------
Net cash provided (used) by operations $ 442,527 $ 1,596,501 $ 1,056,821
=========== =========== ===========
Supplemental schedule of noncash investing
and financing activities:
Unrealized gain (loss) on marketable
securities available for sale $ (2,698) $ 529 $ 35,399
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 63
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The Texas Joint Venture was formed on April 29, 1988, and is
engaged in the business of acquiring, operating and holding
for investment purposes, income-producing, health care related
properties, primarily nursing homes. The joint venture
partners are Medical Income Properties 2A Limited Partnership
and Medical Income Properties 2B Limited Partnership. Each
partner owns 50% of the Joint Venture. Both partners are part
of a series of three Delaware limited partnerships as
represented by a Partnership Prospectus dated October 22,
1986. The Texas Joint Venture owned and operated two nursing
homes in Texas.
As described in Note 12, the Partnership has sold all its
fixed and operating assets and is in the process of
liquidating the remainder of its assets for distribution to
the partners and subsequent dissolution.
(b) Allocation of Net Profits and Net Losses
Net profits and net losses are shared equally by the partners.
(c) Cash Distributions
Cash distributions are made quarterly within 45 days after the
end of the quarter. Cash flow shall be distributed equally to
the partners. Sale or financing proceeds will be distributed
first to creditors and then to the partners equally.
(d) Patient Service Revenue
Patient service revenue is recorded at the nursing homes'
established rates with contractual adjustments ($1,540,182 in
1997, $3,502,579 in 1996 and $4,015,882 in 1995), provision
for uncollectible accounts, (bad debt expense of $44,396 in
1997, $41,632 in 1996 and $108,332 in 1995) and other
discounts deducted to arrive at net patient service revenue.
Net patient revenue includes amounts estimated by management
to be reimbursable by Medicare, Medicaid and other third-party
programs under the provisions of cost and prospective payment
reimbursement formulas in effect. Amounts received under these
programs are generally less than the established billing rates
of the nursing homes and the difference is reported as a
contractual adjustment and deducted from gross revenue.
F-7
<PAGE> 64
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
The nursing homes recognize currently estimated final
settlements due from or to third-party programs. Final
determination of amounts earned is subject to audit by the
intermediaries. Differences between estimated provisions and
final settlement will be reflected as charges or credits to
operating revenues in the year the cost reports are finalized.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation of the
buildings is provided over their estimated useful lives of
thirty years on the straight-line method. Equipment and other
personal property are depreciated over five to seven years on
the straight-line method.
(f) Income Taxes
Taxable income is allocated to the partners and, therefore, no
income taxes have been provided for in these financial
statements.
(g) Cash Equivalents Policy
For the purposes of the statements of cash flows, the Joint
Venture considers all highly liquid debt instruments with an
original maturity of three months or less to be cash
equivalents.
(h) Uninsured Cash Balances
The Joint Venture maintains cash balances in several banks.
Cash accounts at banks are insured by the FDIC for up to
$100,000. The amount in excess of insured limits was
approximately $531,586 at December 31, 1996.
(i) Marketable Securities
The classification of marketable securities is determined at
the date of purchase. Gains or losses on the sale of
securities are recognized on a specific identification basis.
Marketable securities represent an investment of excess funds
as a part of the Joint Venture's cash management policies.
These securities are considered to be available for sale under
Statement of Financial Accounting Standards No. 115 and are,
thus, stated at fair value. Unrealized gains and losses are
recognized as a component of partners' capital as is required
by SFAS No. 115.
F-8
<PAGE> 65
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
(j) Uses of Estimates
Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities, and the reported
revenues and expenses. Actual results could vary from the
estimates that were assumed in preparing the financial
statements.
Note 2. ACQUISITIONS
On May 1, 1988, the Joint Venture purchased Renaissance Place - Katy
Nursing Home located in Texas for $5,472,500 plus capitalized
acquisition costs and fees of $509,290. The seller took back a note for
$300,000 due May 1, 1992, that has subsequently been paid.
On May 1, 1988, the Joint Venture purchased Renaissance Place - Humble
Nursing Home located in Texas for $4,487,500 plus capitalized
acquisition costs and fees of $228,812.
Note 3. MARKETABLE SECURITIES
Marketable securities consist of U.S. Treasury securities. The
following schedule summarizes marketable securities activity for the
years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Beginning balance, amortized cost $2,182,927 $1,402,286
Purchase of marketable securities -- 1,642,784
Redemption of investments (500,000) (900,000)
Net amortization of premiums and
accretion of discounts 67,341 37,857
---------- ----------
Amortized cost 1,750,268 2,182,927
Gross unrealized gain (loss) 5,212 7,913
---------- ----------
Fair value $1,755,480 $2,190,840
========== ==========
</TABLE>
The maturities of investment securities at December 31, 1997 were as
follows:
<TABLE>
<S> <C>
Due in one year or less $1,153,405
Due in two years or less 596,863
----------
$1,750,268
==========
</TABLE>
F-9
<PAGE> 66
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- ------------
<S> <C> <C>
Land $ -- $ 950,000
Buildings and improvements -- 9,550,624
Furniture and equipment -- 1,136,348
Total -- 11,636,972
Accumulated depreciation -- (3,918,600)
-------- ------------
Net property and equipment $ -- $ 7,718,372
======== ============
</TABLE>
Note 5. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Mortgage note with a variable
rate of interest (9.50% at
December 31, 1996) with monthly
principal and interest payments of
$5050. $ - $691,850
Less amounts due in one year
or less - 60,600
-------- --------
$ - $631,250
======== ========
</TABLE>
The mortgage note was secured by all real estate owned by the Joint
Venture, as well as the real estate owned by The Alabama Joint Venture.
Both the Joint Venture and The Alabama Joint Venture are jointly owned
by the Medical Income Properties 2A Limited Partnership (MIP2A) and the
Medical Income Properties 2B Limited Partnership (MIP2B). The General
Partner of MIP2A and MIP2B had guaranteed the debt, as well as pledged
its stock and partnership interest. The management company (See Note 6)
had also guaranteed the debt and had entered into a negative pledge
agreement whereby it would not pledge, transfer or encumber its stock
while the loan was outstanding. All management fees are subordinate to
the debt. The loan document contained restrictive covenants associated
with ratio and earnings requirements. Management is not aware of any
conditions that existed that would have caused them to be in
noncompliance with these requirements.
F-10
<PAGE> 67
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
Note 6. CONTRACTUAL AGREEMENTS
On May 1, 1988, the Joint Venture entered into a management agreement
whereby the Manager was required to perform certain services. The
agreement had an initial five-year term with one additional five-year
option that was exercised in 1993. Fees were based on 6% of gross
collected operating revenues through June 30, 1992. Thereafter they
were based on 5% of gross collected operating revenues, but not less
than $324,000 in a calendar year and were increased by an inflation
factor after 1992. These fees were subordinated to the outstanding
mortgage debt (See Note 5). The Manager had a right of first refusal to
match a bona fide offer made by an outside party to purchase or lease
the nursing home. The management agreement, as amended, contained a
termination clause.
The management agreement was amended on January 1, 1995. The amendment
called for a fixed monthly management fee of $31,379 with a cost of
living factor equal to the greater of 4% per annum or the increase in
the Consumer Price Index or such other measure mutually agreeable to
the parties. The agreement expires December 31, 1998. The termination
on sale clause was amended to base the fee on a sum equal to the
discounted present value of the monthly management fee as of the date
of termination of the agreement times the number of months remaining in
the management agreement discounted to the date of termination at an
annual interest rate of ten percent (10%). In addition, the parties
agreed to terminate the Manager's right of first refusal.
Commencing January 1, 1996, the Management Agreement was extended for a
period of up to a maximum of eighteen months by one month for every
month after January 1, 1996 in which the parties are engaged in the
process of attempting to sell the Facilities. In the event of a sale of
the Facilities, the termination on sale fee described above would be
discounted to the date of termination at an annual rate of ten percent
(10%) and then further discounted by a factor of thirty-three and
one-third percent (33 1/3%). The sale as described in Note 12 includes
the terminating settlement.
Management fees charged to the Joint Venture were $160,600 in 1997,
$391,610 in 1996, and $376,548 in 1995.
Pursuant to the sales agreement described in Note 12, on April 1, 1997,
the Partnership entered into a triple net lease with Omega HealthCare
Investors, Inc. (Omega) to lease all of the properties the Partnership
had previously sold to Omega. The lease expired on December 31, 1997
subject to various extension/termination rights of the Lessor. The
Lessor exercised its option to terminate the lease on May 31, 1997. The
lease payment was based on a fixed amount of base rent plus the net of
the remainder of gross revenue over operating expenses. The base rental
lease expense for the two
F-11
<PAGE> 68
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
months was $240,998 and gross revenue was $47,149 less than the
operating expense for the same period. Total operating lease expense
was $193,849.
Note 7. INCOME TAXES
No provision for income taxes is made in the financial statements since
taxable income is reported in the tax returns of the partners.
Differences between the net income as reported in the financial
statements and Federal taxable income arise from the nature and timing
of certain revenue and expense items. The following is a reconciliation
of reported net income and Federal taxable income.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Net income as reported $2,467,768 $1,115,116 $760,403
Adjustments:
Depreciation differences 17,461 37,528 56,349
Gain on sale of assets (26,634) -- --
Bad debt reserve (106,751) (26,045) 75,856
Nondeductible travel and
entertainment 1,394 9,231 9,770
Accrued insurance -- -- (80,000)
Vacation accrual (105,438) 12,128 23,280
---------- ---------- --------
Federal taxable income $2,247,800 $1,147,958 $845,658
========== ========== ========
</TABLE>
Note 8. RELATED PARTY TRANSACTIONS
Details of the amounts due from affiliates at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- --------
<S> <C> <C>
Due from MIP2A $ 5,633,907 $212,456
Due from MIP2B 5,633,907 210,631
----------- --------
Due from affiliates $11,267,814 $423,087
=========== ========
</TABLE>
See Footnote 12 for sale of affiliated assets.
Note 9. CONTINGENCY
On May 1, 1990, the Joint Venture began self insuring its workmen's
compensation claims for its two nursing home facilities. Accrued
liabilities have been estimated to cover all asserted and unasserted
claims and assessments and funds have been escrowed to cover such
claims. The Joint Venture maintains insurance or reserves that it
believes are adequate to meet the needs of the Joint Venture.
F-12
<PAGE> 69
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
While the Joint Venture Partners have been named as a defendant in
several lawsuits, nothing has come to the attention of the Joint
Venture that leads it to believe that it is exposed to a risk of
material loss not covered by insurance or reserves.
Note 10. CONCENTRATIONS IN REVENUE SOURCES
The Joint Venture provides patient care services under various third
party agreements. The principal sources of revenue under these
contracts are derived primarily through the Medicaid and Medicare
programs, as well as contracts with private pay patients who do not
qualify for assistance from the other programs. The percentage of the
Joint Venture's income from each of these sources for the years ended
December 31, 1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Private pay patients 14.65% 15.07% 18.05%
Medicaid 38.53% 39.62% 38.99%
Medicare 46.82% 45.31% 42.96%
------ ------ ------
Total 100.00% 100.00% 100.00%
====== ====== ======
</TABLE>
The percentage attributable to private pay patients includes only
amounts due for services where the primary payer is a private source.
The Medicaid and Medicare percentages include amounts due from those
programs as well as the patient's financial responsibility incurred
under these contracts.
Note 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Statement No. 107, Disclosures about Fair Value of
Financial Instruments ("FAS 107") requires disclosure of fair value
information about financial instruments, whether or not recognized on
the face of the balance sheet, for which it is practicable to estimate
the value. The assumptions used in the estimation of the fair value of
the Company's financial instruments are detailed below. Where quoted
prices are not available, fair values are based on estimates using
discounted cash flows and other valuation techniques. The use of
discounted cash flows can be significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows.
The following disclosures should not be considered a surrogate of the
liquidation value of the Company, but rather represents a good-faith
estimate of the increase or decrease in value of financial instruments
held by the Company since purchase, origination or issuance. The
following
F-13
<PAGE> 70
THE TEXAS JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
methods and assumptions were used by the Company in estimating the fair
value of its financial instruments:
Investment securities available from sale: These securities
are being carried at fair market value as determined by quoted
market prices.
The other financial instruments of the Company are short-term
assets and liabilities whose carrying amounts reported in the
balance sheet approximate fair value. These items include
cash, accounts receivable and accounts payable.
Note 12. SALE OF ASSETS
On February 3, 1997, Medical Income Properties 2A Limited Partnership
and Medical Income Properties 2B Limited Partnership, the general
partners of The Texas Joint Venture, entered into a purchase agreement
with Omega HealthCare Investors, Inc. to sell all of the real and
personal property of the nursing home facilities.
The purchase price was allocated among the facilities as follows:
<TABLE>
<S> <C>
Renaissance Place - Katy (130 beds) $ 5,969,000
Renaissance Place - Humble (120 beds) 4,975,000
-----------
Proceeds from sale $10,944,000
===========
</TABLE>
Proceeds from the sale were reduced by expenses incurred as a result of
the sale, cash offsets for liabilities assumed by the buyer and
existing indebtedness. These payments approximated $1,828,000. They
included $736,975 for termination of the management agreement as
explained in Note 6.
The closing took place on March 31, 1997. Approximately $365,000 of
these proceeds were set aside in a joint signature account for the
purpose of securing all of the seller's obligations under the purchase
agreement. These funds are being held by the general partners and will
be available to the Partnership in the event that these obligations do
not exceed the funds held in escrow.
As described in Note 6, the Partnership continued to operate the
nursing homes until May 31, 1997.
In conjunction with the above sale, Omega HealthCare Investors, Inc.
agreed to a similar purchase of assets from RWB Medical Properties
Limited Partnership IV, of which an officer of QualiCorp, Inc. owns
either directly or indirectly a 21.53% interest. This sale related to a
131 bed nursing home in Patterson, Louisiana and the purchase price for
the assets was $5,350,000.
F-14
<PAGE> 71
[SELF, MAPLES & COPELAND, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
ON ADDITIONAL INFORMATION
To the Partners
The Texas Joint Venture
Our report on our audits of the basic financial statements of The Texas Joint
Venture for 1997 appears on page 1. Those audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
Schedule of Valuation and Qualifying Accounts and Reserves for Allowances for
Doubtful Accounts, Schedule of Consolidated Supplementary Income Statement
Information, and Schedule of Real Estate and Accumulated Depreciation are
presented for purposes of additional analysis and are not required parts of the
basic financial statements. Such information has been subjected to the auditing
procedures applied to the audits of the basic financial statements, and in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Self, Maples & Copeland, P.C.
Oneonta, Alabama
January 23, 1998
F-15
<PAGE> 72
THE TEXAS JOINT VENTURE
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 106,750 $ 132,796 $ 56,941
Charged to patient service
revenues (145,845) (67,678) (32,477)
Write-offs 44,396 41,632 108,332
--------- --------- ---------
Balance at end of year $ 5,301 $ 106,750 $ 132,796
========= ========= =========
</TABLE>
F-16
<PAGE> 73
THE TEXAS JOINT VENTURE
SCHEDULE X
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Professional care of patients
Nursing salaries and wages $ 971,955 $2,442,501 $2,469,846
Ancillary services expense 1,035,055 1,830,025 1,714,698
Supplies 58,615 138,992 151,705
Temporary labor -- 4,380 83,851
General and administrative
Salaries and wages 166,943 236,614 207,708
Accounting and auditing 48,053 87,134 64,745
Insurance 99,507 132,282 13,436
Property tax 104,232 249,483 237,917
Management fees 160,600 391,610 376,548
Dietary
Food 129,590 298,273 291,648
Household and plant
Repairs and maintenance 20,351 73,771 103,388
Utilities 93,657 190,141 165,204
Depreciation $ 109,923 $ 435,191 $ 444,905
========== ========== ==========
</TABLE>
F-17
<PAGE> 74
THE TEXAS JOINT VENTURE
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED GROSS AMOUNT AT WHICH CARRIED
TO PARTNERSHIP(A) SUBSEQUENT TO AS OF DISPOSITION DATE(B)
ACQUISITION
BUILDING AND CARRYING BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS TOTAL
- ------------------------ ------------ -------- ------------ ------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RENAISSANCE PLACE-KATY $ 0 $650,000 $4,822,500 $503,346 $509,290 $650,000 $ 5,835,136 $ 6,485,136
RENAISSANCE PLACE-HUMBLE 0 300,000 4,187,500 438,824 228,812 300,000 4,855,136 5,155,136
----- -------- ---------- -------- -------- -------- ----------- -----------
$ 0 $950,000 $9,010,000 $942,170 $738,102 $950,000 $10,690,272 $11,640,272
===== ======== ========== ======== ======== ======== =========== ===========
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
ACCUMULATED DATE OF DATE OPERATION IS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
- ------------------------ ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
RENAISSANCE PLACE-KATY $2,142,613 1984 05/01/88 5 TO 30 YEARS
RENAISSANCE PLACE-HUMBLE 1,885,910 1987 05/01/88 5 TO 30 YEARS
----------
$4,028,523
==========
</TABLE>
(A) The initial cost to the Partnership represents the original purchase
price of the properties.
(B) The aggregate cost of real estate owned at the date of disposition for
Federal Income tax purposes was approximately $11,635,801.
(C) Reconciliation of real estate owned at December 31, 1997, 1996, and
1995:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period $11,636,972 $11,593,542 $11,292,495
Additions 3,300 43,430 301,047
Reductions 11,640,272 0 0
----------- ----------- -----------
Balance at end of period $ 0 $11,636,972 $11,593,542
=========== =========== ===========
</TABLE>
(D) Reconciliation of accumulated depreciation:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of period $3,918,600 $3,479,409 $3,038,503
Depreciation expense 109,923 439,191 440,906
Reductions 4,028,523 0 0
---------- ---------- ----------
Balance at end of period $ 0 $3,918,600 $3,479,409
========== ========== ==========
</TABLE>
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP FOR THE
YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,014,047
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,048,483
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,398,202
<CURRENT-LIABILITIES> 10,008,525
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,389,677<F1>
<TOTAL-LIABILITY-AND-EQUITY> 11,398,202
<SALES> 0
<TOTAL-REVENUES> 1,675,043
<CGS> 0
<TOTAL-COSTS> 2,100,296
<OTHER-EXPENSES> (86,501)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,886
<INCOME-PRETAX> (210,948)
<INCOME-TAX> 0
<INCOME-CONTINUING> (210,948)
<DISCONTINUED> (129,921)
<EXTRAORDINARY> 2,475,133
<CHANGES> 0
<NET-INCOME> 2,134,254
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
REPRESENT TOTAL PARTNERSHIP CAPITAL INCLUDING NET INCOME NET OF DISTRIBUTIONS.
</FN>
</TABLE>
