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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)

     [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the
          Securities Exchange Act of 1934

     For the quarterly period ended June 30, 1999.

                                       OR

     [ ]  Transition Report Pursuant to Section 13 or 15(d) of the
          Securities Exchange Act of 1934

     For the transition period from _______________ to _______________.

                         Commission file number 0-27374

                         RAINTREE HEALTHCARE CORPORATION
             (Exact name of registrant as specified in its charter)

              Delaware                                    86-0684011
     (State or other jurisdiction of                  (I.R.S. Employer
     incorporation or organization)                  Identification No.)

                          15300 N. 90th St., Suite 100
                              Scottsdale, AZ 85260
                    (Address of principal executive offices)

                                 (480) 423-1954
              (Registrant's telephone number, including area code)

     Indicate by check mark  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 [ ]

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes [X] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     As of August 1,  1999,  there  were  7,593,697  shares of $0.001  par value
common stock outstanding.

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<PAGE>

                         RAINTREE HEALTHCARE CORPORATION

                                      INDEX


PART I - FINANCIAL INFORMATION                                          Page No.
                                                                        --------

Item 1. Financial Statements:

        Consolidated Balance Sheets as of June 30, 1999 (unaudited)
          and December 31, 1998........................................     3

        Consolidated Statements of Operations for the three months
          and five months ended June 30, 1999, the one month ended
          January 31, 1999, and the three months and six months ended
          June 30, 1998 (unaudited)....................................     4

        Consolidated Statements of Cash Flows for the five months
          ended June 30, 1999, the one month ended January 31, 1999
          and the six months ended June 30, 1998 (unaudited)...........     5

        Notes to Consolidated Financial Statements.....................     6

Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations......................................    14


PART II - OTHER INFORMATION

Item 1. Legal Proceedings..............................................    24

Item 3. Defaults Upon Senior Securities................................    25

Item 6. Exhibits and Reports on Form 8-K...............................    26

Signatures.............................................................    27


NOTE:    Item 3 of Part I is omitted because it is not  applicable.  Items 2, 4
         and 5 of Part II are omitted because they are not applicable.


                                       2
<PAGE>

                         RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)



                                                     Reorganized | Predecessor
                                                       Company   |   Company
                                                       June 30,  | December 31,
                                                        1999     |     1998
                                                     (unaudited) |
                                                     ----------- | ------------
ASSETS                                                           |
Current assets:                                                  |
  Cash and cash equivalents.......................   $    3,157  | $     16,863
  Accounts receivable.............................       16,924  |       22,621
  Prepaid expenses and other current assets ......        3,070  |        8,670
                                                     ----------  | ------------
     Total current assets.........................       23,151  |       48,154
Property and equipment, net.......................       45,669  |       29,227
Reorganization value in excess of amounts                        |
  allocable to identifiable assets................       50,033  |           --
Lease operating rights and other intangible                      |
  assets, net.....................................        1,029  |       58,960
Goodwill, net.....................................           --  |       24,816
Deposits..........................................        8,255  |        9,383
                                                     ----------  | ------------
                                                     $  128,137  |    $ 170,540
                                                     ==========  |  ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                   |
Current liabilities:                                             |
  Accounts payable................................   $   11,057  | $     10,815
  Accrued expenses ...............................       17,120  |       15,175
  Current portion of notes payable and                           |
    long-term debt................................          850  |        1,012
  Long-term debt in default classified                           |
    as current....................................       35,137  |           --
                                                     ----------  |  -----------
     Total current liabilities....................       64,164  |       27,002
Liabilities subject to compromise ................           --  |      166,870
Notes payable and long-term debt .................        2,415  |        7,132
Lease financing obligation .......................       38,200  |       38,200
Deferred taxes ...................................        9,000  |        5,456
Leasehold liability, net .........................           --  |        4,058
Other liabilities.................................        1,280  |          899
                                                     ----------  |  -----------
     Total liabilities............................      115,059  |      249,617
Stockholders' equity (deficit):                                  |
  Common stock, $.001 par value; authorized                      |
    10,000,000 shares; 7,593,697 shares issued                   |
    and outstanding at June 30, 1999..............            8  |           --
  Common stock, $.001 par value; authorized                      |
    25,000,000 shares; 6,422,096 shares issued                   |
    and outstanding at December 31, 1998..........           --  |            5
  Additional paid-in capital......................       20,573  |       36,211
  Retained earnings (accumulated deficit).........       (6,996) |     (115,293)
  Unearned compensation...........................         (507) |           --
                                                     ----------  |  -----------
     Net stockholders' equity (deficit)...........       13,078  |      (79,077)
                                                     ----------  |  -----------
                                                     $  128,137  |  $   170,540
                                                     ==========  |  ===========

  See accompanying Notes to Consolidated Financial Statements and Management's
    Discussion and Analysis of Financial Condition and Results of Operations.

                                       3
<PAGE>

                         RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                             Reorganized Company      |            Predecessor Company
                                                         ---------------------------  |  ---------------------------------------
                                                         Three Months    Five Months  |   One Month    Three Months   Six Months
                                                             Ended          Ended     |     Ended         Ended         Ended
                                                            June 30,       June 30,   |  January 31,     June 30,      June 30,
                                                             1999           1999      |     1999           1998          1998
                                                         ------------    -----------  |  -----------   ------------   ----------
<S>                                                      <C>             <C>          |  <C>           <C>            <C>
Total revenues.........................................  $    30,949     $   52,883   |  $   12,893    $    48,123    $  102,800
                                                                                      |
Expenses:                                                                             |
  Wages and related....................................       17,687         30,228   |       7,074         24,471        52,447
  Other operating......................................       10,861         17,700   |       6,088         17,693        37,176
  Rent.................................................        3,062          5,142   |       1,112          3,702         7,666
  Interest (excludes contractual interest not                                         |
    accrued on prepetition debt of $1,507 in January                                  |
    1999 and $1,526 and $1,601 in the three and six                                   |
    months ended June 30, 1998, respectively...........        2,409          3,808   |         445          4,116         9,916
                                                                                      |
  Depreciation and amortization .......................        1,809          3,001   |         622          2,297         4,570
                                                         -----------     ----------   |  ----------    -----------    ----------
       Total expenses..................................       35,828         59,879   |      15,341         52,279       111,775
                                                         -----------     ----------   |  ----------    -----------    ----------
Loss from operations...................................       (4,879)        (6,996)  |      (2,448)        (4,156)       (8,975)
Reorganization expenses ...............................           --             --   |      54,597            868           868
                                                         -----------     ----------   |  ----------    -----------    ----------
Loss before income taxes and extraordinary credit......       (4,879)        (6,996)  |     (57,045)        (5,024)       (9,843)
Income tax benefit.....................................           --             --   |          --             --            --
                                                         -----------     ----------   |  ----------    -----------    ----------
Loss before extraordinary credit.......................       (4,879)        (6,996)  |     (57,045)        (5,024)       (9,843)
Extraordinary credit - gain on debt discharge..........           --             --   |     113,242             --            --
                                                         -----------     ----------   |  ----------    -----------    ----------
Net income (loss)......................................  $    (4,879)    $   (6,996)  |  $   56,197    $    (5,024)   $   (9,843)
                                                         ===========     ==========   |  ==========    ===========    ==========
Net income (loss) per share:                                                          |
  Loss before income taxes and extraordinary credit....  $     (0.64)    $    (0.92)  |  $    (8.88)   $     (0.78)   $    (1.53)
  Extraordinary credit - gain on debt discharge........           --             --   |       17.63             --            --
                                                         -----------     ----------   |  ----------    -----------    ----------
  Net income (loss) per share..........................  $     (0.64)    $    (0.92)  |  $     8.75    $     (0.78)   $    (1.53)
                                                         ===========     ==========   |  ==========    ===========    ==========
Weighted average common shares used in                                                |
  per share calculation................................        7,594          7,594   |       6,422          6,422         6,422
</TABLE>

  See accompanying Notes to Consolidated Financial Statements and Management's
    Discussion and Analysis of Financial Condition and Results of Operations.

                                       4
<PAGE>

                         RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                      Reorganized  |  Predecessor    Predecessor
                                                                                        Company    |    Company       Company
                                                                                      Five Months  |   One Month     Six Months
                                                                                         Ended     |     Ended          Ended
                                                                                        June 30,   |  January 31,      June 30,
                                                                                         1999      |     1999           1998
                                                                                      -----------  |  -----------    ----------
<S>                                                                                   <C>          |  <C>            <C>
Net cash provided by (used in) operating activities (including changes                             |
   in all operating assets and liabilities)..................................         $   (2,447)  |  $   (2,937)    $    4,897
                                                                                      ----------   |  ----------     ----------
INVESTING ACTIVITIES:                                                                              |

Purchase of equipment and leasehold improvements.............................             (1,367)  |        (218)        (1,523)
Sale of assets...............................................................              1,220   |          --             --
(Increase) decrease in lease and insurance deposits..........................              1,141   |         (13)        (1,165)
                                                                                      ----------   |  ----------     ----------
Net cash provided by (used in) investing activities..........................                994   |        (231)        (2,688)
                                                                                      ----------   |  ----------     ----------
FINANCING ACTIVITIES:                                                                              |
Net increase (decrease) in revolving lines of credit.........................              5,552   |       1,012         (1,552)
Debt payments................................................................               (511)  |         (10)        (1,365)
Change in bank overdrafts....................................................             (2,006)  |       2,611           (239)
Increase in deferred financing costs.........................................                (49)  |          --            (56)
                                                                                      ----------   |  ----------     ----------
Net cash provided by (used in) financing activities..........................              2,986   |       3,613         (3,212)
                                                                                      ----------   |  ----------     ----------
REORGANIZATION ACTIVITIES:                                                                         |
Cash paid to settle bankruptcy claims........................................                 --   |     (15,684)            --
                                                                                      ----------   |  ----------     ----------
Net increase (decrease) in cash..............................................              1,533   |     (15,239)        (1,003)
Cash and cash equivalents at beginning of period.............................              1,624   |      16,863          5,295
                                                                                      ----------   |  ----------     ----------
Cash and cash equivalents at end of period...................................         $    3,157   |  $    1,624     $    4,292
                                                                                      ==========   |  ==========     ==========
Cash paid for:                                                                                     |
   Interest                                                                           $    2,390   |  $      410     $    1,975
   Income taxes                                                                               45   |         --             --

</TABLE>



  See accompanying Notes to Consolidated Financial Statements and Management's
    Discussion and Analysis of Financial Condition and Results of Operations.

                                       5
<PAGE>

                         RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   DESCRIPTION OF BUSINESS

     RainTree is a provider of long-term and specialty healthcare  services.  At
June 30, 1999, RainTree operated 41 facilities, including six facilities managed
on behalf of a third party.  RainTree also provides,  either directly or through
third-party contracts, pharmaceutical services, rehabilitation therapy services,
medical  supplies  and  laboratory  testing,  both  to  its  facilities  and  to
nonaffiliated entities.

2.   BASIS OF PRESENTATION

     RainTree Healthcare  Corporation  (formerly Unison HealthCare  Corporation)
(the  "Predecessor  Company")  filed a  voluntary  petition  on May 28,  1998 to
reorganize under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code").
In January  1999,  the Plan of  Reorganization  (the "Plan") was  confirmed  and
became  effective  on January 31, 1999 (the  "Effective  Date").  On January 31,
1999, RainTree Healthcare Corporation (the "Reorganized Company", "RainTree", or
the  "Company")  adopted fresh start  reporting in accordance  with Statement of
Position  90-7,  "Financial  Reporting by Entities in  Reorganization  under the
Bankruptcy  Code" ("SOP  90-7") of the American  Institute  of Certified  Public
Accountants.  Accordingly,  RainTree's  post-reorganization  balance  sheet  and
statement of operations  have not been prepared on a basis  consistent  with the
pre-reorganization  financial  statements  and are not  comparable  to financial
statements prior to reorganization.  For accounting purposes, the inception date
of the  Reorganized  Company is deemed to be January 31, 1999. A vertical  black
line is shown in the financial  statements to separate the  Reorganized  Company
from the  Predecessor  Company since they have not been prepared on a consistent
basis of accounting.

     The  consolidated  financial  statements  included  herein  (except for the
balance sheet as of December 31, 1998) are unaudited; however, in the opinion of
management, they include all adjustments which are necessary to state fairly the
financial  position,  cash flows and results of  operations  of RainTree and the
Predecessor Company as of and for the periods indicated.  RainTree presumes that
users of the interim  financial  information  herein have read or have access to
the Company's  audited  financial  statements  and  Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations  for the  preceding
fiscal year and that the adequacy of  additional  disclosures  needed for a fair
presentation,  except in regard to material contingencies,  may be determined in
that  context.   Accordingly,   footnote  and  other   disclosures  which  would
substantially  duplicate the  disclosures  contained in  RainTree's  most recent
annual report to stockholders have been omitted.

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Actual results could differ from those estimates.  Operating
results  for the  three  months  and five  months  ended  June 30,  1999 are not
necessarily  indicative  of the results  which may be expected for the 11 months
ended December 31, 1999.

     Certain  reclassifications  have  been  made  to  the  Predecessor  Company
financial statements to conform to the current year presentation.

     The  provision  for  doubtful  accounts  receivable  is  included  in other
operating  expenses.  Provisions  totaled  $1.2 million and $1.7 million for the
three months and five months ended June 30, 1999,  and $1.4  million,  $904,000,
and $1.2 million for the one month ended January 31, 1999,  and the three months
and six months ended June 30, 1998,  respectively.  The  allowance  for doubtful


                                       6
<PAGE>

accounts  totaled $3.7 million at June 30, 1999 and $9.7 million at December 31,
1998.

3.   PLAN OF REORGANIZATION

     The  implementation of the Plan allowed RainTree to restructure its balance
sheet,  significantly  reduce  its  debt  burden  and  dispose  of  unprofitable
facilities. Prior to the confirmation of the Plan, the Company reached agreement
with respect to its  restructuring  with its major  creditors  including,  among
others:

     o    Omega Healthcare Investors,  Inc. ("Omega"), from whom RainTree leases
          long-term care facilities;

     o    The holders of $100.0  million of 12-1/4%  Senior  Notes due 2006 (the
          "12-1/4% Senior Notes") and $20.0 million of 13% Senior Notes due 1999
          (the "13% Senior Notes");

     o    Health Care Financial  Partners ("Health  Partners"),  who provided an
          $11.0 million accounts  receivable-backed line of credit facility (the
          "HCFP DIP  Facility")  for  working  capital  during  the  Chapter  11
          proceedings;

     o    Bruce H.  Whitehead,  a major  stockholder and creditor of the Company
          and,  until  May  29,  1998,  the  Chairman  of  RainTree's  board  of
          directors; and

     o    David A. Kremser, a major stockholder and creditor of the Company and,
          until May 29, 1998, a director of RainTree.

     Prior to the  Effective  Date,  the  Company  leased  six  facilities  from
BritWill  Investments  Texas,  Ltd.  ("BritWill  Texas"),  an  affiliate  of Mr.
Whitehead, which were subject to a mortgage in favor of Omega.

     The major provisions of the Plan are as follows.

     o    All of RainTree's common stock was cancelled on the Effective Date. As
          described below, RainTree will issue up to 8 million new common shares
          (the "New Common Stock"). RainTree will also issue up to approximately
          $26 million of new debt  securities  (the "Senior  Secured  Notes") in
          satisfaction  of  bankruptcy  claims  held  by  unsecured   creditors,
          including  the holders of the 13% Senior Notes and the 12-1/4%  Senior
          Notes.  The Senior  Secured Notes bear interest at 11.0%,  will mature
          four years from the Effective  Date,  and are secured by the stock and
          personal property of certain RainTree subsidiaries.

     o    On December 31,  1998,  Omega  purchased  seven  facilities  owned and
          operated  by  RainTree  for a  purchase  price of $38.2  million.  The
          facilities were then leased back to RainTree (the "Sale Leaseback"). A
          portion  of the  proceeds  were used to (i) repay  the  mortgage  note
          related to six of these facilities  amounting to  approximately  $19.3
          million, including a prepayment penalty (the "Mortgage Note") and (ii)
          exercise  the  Company's  option to  purchase  The Arbors  Health Care
          Center  for  approximately  $3.2  million.  The  Arbors  facility  was
          included in the Sale Leaseback.  The remaining  proceeds from the sale
          were held in escrow until the Effective  Date,  when they were used to
          settle  bankruptcy  claims as provided  for in the Plan and  described
          below. Omega received closing costs,  financing fees and reimbursement
          of expenses in the amount of $1.0 million.  These seven facilities and
          eleven  other  facilities  leased from Omega and  BritWill  Texas were
          combined  into a single  master  lease  (the  "Omega  Master  Lease").
          RainTree  realized  no gain or loss on the Sale  Leaseback,  which was
          accounted for as a financing transaction.


                                       7
<PAGE>

     o    Six leased  facilities were returned to Omega and three BritWill Texas
          facilities  that  RainTree  disposed  of in March 1997  pursuant  to a
          sublease  agreement  are excluded  from the Master  Lease.  In return,
          Omega  received  $2.0  million in cash,  a  seven-year,  $3.0  million
          promissory  note  bearing  interest  at 7.0%  (the  "Indiana  Returned
          Facilities  Note") and a guarantee  by RainTree  that  supersedes  and
          replaces  all  previous  guarantees  of  BritWill  Texas  obligations.
          RainTree also paid to Omega,  in cash,  prepetition  rent payments and
          other  obligations in the amount of  approximately  $2.0 million.  See
          Note 10.

     o    In settlement of  approximately  $15.8 million of allowed claims,  Mr.
          Whitehead and affiliates (the "Whitehead Affiliates) received $541,000
          in  cash,  unsecured  promissory  notes  totaling  $1.5  million  (the
          "Whitehead  Notes"),  Senior  Secured Notes  amounting to $292,000 and
          approximately  729,000  shares  of New  Common  Stock.  The  unsecured
          promissory  notes bear interest at 9.0%,  payable  quarterly,  and the
          principal amount will be due and payable at the end of four years. See
          Note 10.

     o    In settlement of  approximately  $5.4 million of allowed  claims,  Mr.
          Kremser and affiliates (the "Kremser Affiliates") received $541,000 in
          cash and a promissory  note amounting to $1.4 million.  The promissory
          note bears  interest at 9.0%,  payable  quarterly,  and the  principal
          amount will be due and  payable at the end of five years.  The Kremser
          Affiliates'  note is secured by certain  personal  property of certain
          RainTree subsidiaries.

     o    Convenience  Claims,  defined in the Plan as  payables  due to general
          unsecured  creditors  amounting  to $1,000 or less (or  $2,000 or less
          whose  holders  elect to reduce their claims to $1,000),  were paid in
          cash.  RainTree  paid  approximately  $520,000  to settle  Convenience
          Claims.  Essential Vendor Claims,  defined in the Plan as payables due
          to vendors and  suppliers  essential to RainTree's  ongoing  business,
          were  paid in cash  in the  aggregate  amount  of  approximately  $2.5
          million.

     o    Trade  Unsecured  Claims are  defined in the Plan as payables to other
          nonessential  trade  vendors.  RainTree is currently in the process of
          settling Trade Unsecured  Claims and other general  unsecured  claims.
          Each holder of a Trade  Unsecured  Claim will  receive,  in cash,  the
          lesser of 35% of the allowed amount of the claim or a pro rata portion
          of $1.4 million,  plus shares of New Common Stock. The total amount of
          Trade Unsecured Claims was approximately $3.4 million.

     o    All  other  general  unsecured   creditors  will  share  pro  rata  in
          approximately  91% of the New  Common  Stock  and the  Senior  Secured
          Notes.  A  subordination  agreement  related to the 13%  Senior  Notes
          resulted in a  reallocation  among the holders of the 13% Senior Notes
          and those  holders of the 12-1/4%  Senior Notes who had consented to a
          subordination agreement (the "Consenting Noteholders"). As a result of
          this reallocation, the holders of the 13% Senior Notes received Senior
          Secured  Notes equal to 100% of their allowed  claims ($22.1  million)
          and the Consenting Noteholders received only New Common Stock totaling
          approximately  6,343,000  shares.  The holders of the  12-1/4%  Senior
          Notes who did not  consent  to the  subordination  agreement  received
          Senior Secured Notes totaling $1.8 million and  approximately  522,000
          shares of New Common  Stock.  The  aggregate  amount of these  general
          unsecured claims was approximately $137.5 million.

     o    Secured  claims  included the Mortgage  Note,  the HCFP DIP  Facility,
          claims of Omega,  property tax  liabilities  and other secured  loans.
          Secured claims were either:  (i) paid in cash;  (ii) the liability was
          continued in accordance  with its original  terms after  defaults,  if


                                       8
<PAGE>

          any, were cured;  or (iii) the collateral  securing such liability was
          returned  to the  creditor  in full  satisfaction  of the  claim.  The
          aggregate amount of secured claims was approximately $34.7 million.

     o    The Company's  stockholders and members of a shareholders class action
          lawsuit  settlement  class  will  share  pro rata in the  issuance  of
          warrants to purchase approximately 400,000 shares of New Common Stock.

     o    Shortly after the Effective Date,  RainTree obtained $7.0 million of a
          new $12.0  million line of credit from Health  Partners  that replaced
          the HCFP DIP Facility. The remaining portion of the line of credit was
          obtained on May 14, 1999. See "Management's Discussion and Analysis of
          Financial  Condition and Results of  Operations-Liquidity  and Capital
          Resources."

     o    On April 28, 1999,  RainTree  entered into employment  agreements with
          four of its executive officers ("Senior Management").  Under the terms
          of  the  employment  agreements,  Senior  Management  was  awarded  an
          aggregate of 360,000  restricted  stock units.  Each restricted  stock
          unit entitles the holder to receive,  subject to vesting, one share of
          New Common  Stock upon the earlier of February 1, 2002 or  termination
          of employment. See Note 7.

4.   FRESH START REPORTING

     In accordance with SOP 90-7,  RainTree  adopted fresh start reporting as of
the Effective  Date.  RainTree,  with the assistance of its financial  advisors,
determined its  reorganization  value, which represents the fair market value of
the Company before considering liabilities.  Reorganization value is intended to
represent  the  amount a  willing  buyer  would pay for the  assets of  RainTree
immediately  after its emergence from Chapter 11. The  reorganization  value was
based on, among other things,  discounted cash flows for the reorganized Company
over a 14-year  period.  The projected  cash flows  included  assumptions  as to
anticipated revenues,  operating expenses and capital  expenditures.  A discount
rate of 16% was used,  which  reflects the  uncertainty  of the cash flows,  the
general  inherent  risk of the long-term  care  industry,  and general  business
conditions.

     Under fresh start reporting,  the  reorganization  value of the Company has
been allocated to RainTree's  assets on a basis  substantially  consistent  with
purchase  accounting.  The excess of the reorganization  value over the value of
identifiable  assets is reported as  "reorganization  value in excess of amounts
allocable to identifiable assets." All identifiable assets were recorded at fair
value, which  approximated  carrying value. The new Senior Secured Notes and all
other  liabilities  were  recorded at fair value,  which  approximated  carrying
value.

     The  adjustments  made to  give  effect  to the  discharge  of  prepetition
liabilities  and fresh start reporting are as follows.  The reorganized  balance
sheet gives pro forma effect to New Common Stock and Senior Secured Notes yet to
be issued under the Plan (in thousands).


                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                   January 31, 1999
                                                    Preconfirmation   Reorganization    Fresh Start     Reorganized
                                                     Balance Sheet     Adjustments      Adjustments    Balance Sheet
                                                   ----------------   --------------    -----------    -------------
<S>                                                    <C>            <C>                <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents.......................    $  17,308      $ (15,684) (a)     $    --         $  1,624
   Accounts receivable, net........................       21,459             --               --           21,459
   Prepaid expenses and other current assets.......        8,815             --            (5,456) (g)
                                                                                             (103) (h)      3,256
                                                        --------      ---------          --------        --------
      Total current assets.........................       47,582        (15,684)           (5,559)         26,339
Property and equipment, net........................       29,081         (3,117) (b)       19,751  (h)     45,715
Lease operating rights and other intangibles, net..       58,608         (4,728) (c)      (52,858) (h)      1,022
Goodwill, net......................................       24,727             --           (24,727) (h)         --
Deposits...........................................        9,675           (279) (d)          --            9,396
Reorganization value in excess of amounts
   allocable to identifiable assets................           --             --            42,568  (h)
                                                                                            9,000  (g)     51,568
                                                       ---------      ---------          --------        --------
                                                       $ 169,673      $ (23,808)         $(11,825)       $134,040
                                                       =========      =========          ========        ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable................................    $  10,958      $      --          $    --         $ 10,958
   Accrued expenses................................       16,321          5,955  (e)          --           22,276
   Current portion of long-term debt...............        1,012           (440) (e)          --              572
                                                       ---------      ---------          --------        --------
      Total current liabilities....................       28,291          5,515               --           33,806
Liabilities subject to compromise..................      166,870       (166,870) (e)          --               --
Notes payable and long-term debt...................        8,144         24,305  (a)          --           32,449
Lease financing obligation.........................       38,200             --               --           38,200
Deferred taxes ....................................        5,456             --             3,544  (g)      9,000
Leasehold liability, net...........................        4,058             --            (4,058) (h)         --
Other liabilities..................................          897             --                --             897
                                                       ---------      ---------          --------        --------
   Total liabilities...............................      251,916       (137,050)             (514)        114,352
Stockholders' equity (deficit):
   Common stock, Predecessor Company...............            5             --                (5) (i)         --
   Common stock, Reorganized Company...............           --              8  (a)           --               8
   Additional paid-in capital......................       36,211         19,680  (a)      (36,211) (i)     19,680
   Retained earnings (accumulated deficit).........     (118,459)        93,554  (f)       24,905  (i)         --
                                                       ---------      ---------          --------        --------
      Net stockholders' equity (deficit)...........      (82,243)       113,242           (11,311)         19,688
                                                       ---------      ---------          --------        --------
                                                        $169,673      $ (23,808)         $(11,825)       $134,040
                                                       =========      =========          ========        ========
-------------------------------
<FN>
(a)  To record the  settlement of  bankruptcy  claims  through  payment of cash,
     issuance of Senior Secured Notes and issuance of New Common Stock.
(b)  To reflect property and equipment  returned to creditors in satisfaction of
     bankruptcy claims.
(c)  To record the write-off of deferred debt issue costs.
(d)  To record  adjustments  to security  deposits  related to the Omega  Master
     Lease.
(e)  To record the discharge or reclassification of prepetition obligations.
(f)  To record  the gain on  discharge  of  indebtedness  ($113,242)  net of New
     Common Stock issued ($19,688).
(g)  To record adjustment to deferred tax assets and liabilities.
(h)  To record  adjustments  to reflect  assets and  liabilities  at fair market
     values and to record reorganization value in excess of amounts allocable to
     identifiable assets.
(i)  To  record  the  cancellation  of  Predecessor  Company  common  stock  and
     elimination of retained earnings.
</FN>
</TABLE>

                                       10
<PAGE>

     REORGANIZATION EXPENSES. In accordance with SOP 90-7,  reorganization items
are  reported   separately  in  the   consolidated   statement  of   operations.
Reorganization items for the one month ended January 31, 1999 are as follows (in
thousands):

     Adjustments of assets and liabilities to fair value.........    $53,879
     Professional fees and other expenses related to the
       Chapter 11 proceedings....................................        718
                                                                     -------
                                                                     $54,597
                                                                     =======

5.   LIABILITIES SUBJECT TO COMPROMISE

     During the Chapter 11 process, the Predecessor Company and its subsidiaries
(the  "Debtors")  operated  their  businesses  and managed  their  properties as
debtors-in-possession  under authority of the Bankruptcy Code. Under Chapter 11,
certain  claims  against  the  Debtors in  existence  prior to the filing of the
petitions for reorganization under the federal bankruptcy laws were stayed while
the Debtors were in  bankruptcy.  These claims are set forth in the December 31,
1998 balance sheet as  "liabilities  subject to  compromise." In accordance with
SOP 90-7, the accrual for interest on unsecured,  prepetition obligations of the
Debtors was discontinued from the filing date to the Effective Date.

     Liabilities subject to compromise consisted of the following as of December
31, 1998 (in thousands):

     12-1/4% Senior Notes......................................    $100,000
     13% Senior Notes..........................................      20,000
     Notes payable and long-term debt .........................      24,495
     Trade payables............................................       4,661
     Accrued interest..........................................      11,486
     Other.....................................................       6,228
                                                                   --------
                                                                   $166,870
                                                                   ========

6.   DISPOSITIONS

     As part of RainTree's restructuring,  the Company identified long-term care
facilities  for  disposition.  As part of  these  plans,  in  1998  the  Company
terminated the leases of 12 long-term care  facilities.  RainTree's  disposition
program was concluded in January 1999, when the Company terminated the leases of
seven facilities, six of which were leased from Omega.

     On June 3, 1999, RainTree sold certain assets of Sunbelt Therapy Management
Services, Inc. and its subsidiaries ("Sunbelt"). Sunbelt provides rehabilitation
therapy services to certain RainTree  facilities and third parties. An affiliate
of Paul  Henderson and Paige Plash,  who were the president and  vice-president,
respectively,  of Sunbelt until April 1, 1999,  purchased  the therapy  services
contracts  of Sunbelt's  outpatient  clinics,  hospitals,  home health and other
businesses not related to long-term care facilities. Messrs. Henderson and Plash
also acquired the therapy services contracts of two RainTree nursing facilities.
The sales price was approximately $1.2 million,  in cash, plus the assumption of
certain Sunbelt liabilities  amounting to approximately  $361,000.  On April 14,
1999,  RainTree entered into a one-year  agreement with an unrelated third party
to manage Sunbelt's  remaining  long-term care therapy  operations for a monthly
fee of $64,000 plus incentives.

7.   RESTRICTED STOCK AWARDS

     On April 28, 1999,  RainTree  awarded a total of 360,000  restricted  stock
units  ("Units") to Senior  Management.  Each vested Unit entitles the holder to


                                       11
<PAGE>

receive one share of RainTree common stock upon the earlier of April 28, 2002 or
termination of employment for any reason.

     Of the  Units,  136,000  vested on April  28,  1999,  112,000  will vest on
February  1, 2000 and  112,000  will vest on  February  1, 2001.  The Units were
recorded at the market value on the grant date,  which was estimated to be $2.50
per share.  The total  market value of  immediately  vested Units was charged to
compensation  expense.  The total market value of the remaining Units is treated
as unearned  compensation and recorded as a separate  component of stockholders'
equity.  Unearned  compensation  is charged to expense over the vesting  period.
Total  compensation  expense  related  to the Units  amounted  to  approximately
$393,000 in the 1999 second quarter.

     The Units are not included in the calculation of net loss per share because
they are antidilutive.

8.   OPERATING SEGMENTS

     During the fourth quarter of 1998,  RainTree adopted Statement of Financial
Accounting  Standards No. 131,  "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 requires the presentation of
descriptive  information about reportable  segments that is consistent with that
made  available  to  the  management  of  the  Company  to  assess  performance.
RainTree's  four reportable  segments are strategic  business units that involve
specialized healthcare services and require different marketing strategies.

     The long-term care segment  consists of RainTree's  nursing  facilities and
assisted and  independent  living  facilities.  Sunbelt  conducts the  Company's
rehabilitation therapy segment operations.  The pharmacy segment is comprised of
RainTree's  institutional  pharmacy  and  Medicare  Part B  billing  and  supply
business units. The laboratory  segment  represents the operations of RainTree's
medical reference laboratories.


                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                             Reorganized Company      |            Predecessor Company
                                                         ---------------------------  |  ---------------------------------------
                                                         Three Months    Five Months  |   One Month    Three Months   Six Months
                                                             Ended          Ended     |     Ended         Ended         Ended
                                                            June 30,       June 30,   |  January 31,     June 30,      June 30,
                                                             1999           1999      |     1999           1998          1998
                                                         ------------    -----------  |  -----------   ------------   ----------
<S>                                                      <C>             <C>          |  <C>           <C>            <C>
Revenues from nonrelated entities:                                                    |
  Long-term care.....................................     $ 26,639       $ 44,304     |    $ 10,142      $36,032      $ 76,982
  Rehabilitation therapy.............................          303          1,775     |         715        3,328         6,828
  Pharmacy...........................................        2,151          3,538     |         729        2,606         5,013
  Laboratory.........................................        1,533          2,857     |         482        1,504         2,957
  Corporate..........................................          323            409     |          50           21            55
                                                          --------       --------     |    --------      -------      --------
    Total............................................     $ 30,949       $ 52,883     |    $ 12,118      $43,491      $ 91,835
                                                          ========       ========     |    ========      =======      ========
Total revenues:                                                                       |
  Long-term care.....................................     $ 26,639       $ 44,304     |    $ 10,142      $36,032      $ 76,982
  Rehabilitation therapy.............................        1,090          3,426     |       1,152        6,547        14,899
  Pharmacy...........................................        2,663          4,401     |       1,039        4,019         7,907
  Laboratory.........................................        1,610          2,993     |         510        1,504         2,957
  Corporate..........................................        1,941          3,227     |         676        2,379         5,086
  Eliminations.......................................       (2,994)        (5,468)    |        (626)      (2,358)       (5,031)
                                                          --------       --------     |    --------      -------      --------
    Total............................................     $ 30,949       $ 52,883     |    $ 12,893      $48,123      $102,800
                                                          ========       ========     |    ========      =======      ========
Operating income (loss):                                                              |
  Long-term care.....................................     $     17       $    221     |    $   (251)     $  (628)     $ (1,411)
  Rehabilitation therapy.............................         (456)          (816)    |      (1,476)        (546)         (155)
  Pharmacy...........................................           75             41     |         140          780         1,547
  Laboratory.........................................         (280)           (91)    |        (120)          58           (21)
  Unallocated corporate expenses.....................       (4,235)        (6,351)    |        (741)      (3,820)       (8,935)
                                                          --------       --------     |    --------      -------      --------
    Consolidated operating loss......................       (4,879)        (6,996)    |      (2,448)      (4,156)       (8,975)
Reorganization expenses..............................           --             --     |      54,597          868           868
                                                          --------       --------     |    --------      -------      --------
Consolidated loss before income taxes and                                             |
  Extraordinary credit...............................     $ (4,879)      $ (6,996)    |    $(57,045)     $(5,024)     $ (9,843)
                                                          ========       ========     |    ========      =======      ========

                                                                         June 30,     |  December 31,
                                                                           1999       |     1998
                                                                         --------     |  ------------
Total assets:                                                                         |
   Long-term care....................................                    $ 67,689     |    $ 79,624
   Rehabilitation therapy............................                         129     |      13,266
   Pharmacy..........................................                       2,422     |       5,751
   Laboratory........................................                       2,552     |       2,372
   Corporate.........................................                      55,561     |      73,732
   Eliminations......................................                        (216)    |      (4,205)
                                                                         --------     |    --------
      Total..........................................                    $128,137     |    $170,540
                                                                         ========     |    ========
</TABLE>

10.  ISSUES IMPACTING LIQUIDITY

     RainTree did not make the $1.3 million semiannual interest payment due July
1, 1999 on the  Senior  Secured  Notes.  The  Indenture  under  which the Senior
Secured Notes were issued  provides for a 45-day grace period before an event of
default  occurs due to nonpayment  of interest.  The grace period for the July 1
payment expired on August 15, 1999. On August 16, 1999, the Company entered into
a forbearance  agreement  with the Indenture  Trustee,  whereby the holders of a
majority of the Senior  Secured Notes have agreed not to exercise any rights and
remedies under the Indenture and related  documents  arising from the failure to
pay the interest when due. The forbearance agreement expires on August 20, 1999.
The Company  expects to enter into another  agreement that it  anticipates  will
further extend the forbearance of the noteholders'  exercise of their rights and
remedies  under  the  Indenture.  However,  if  RainTree  does not  obtain  this
extension,  the holders of the Senior  Secured  Notes could elect to  accelerate
this  obligation,  and the debt could become  immediately  due and  payable.  In
addition,  a default under the Senior Secured Notes  Indenture would result in a


                                       13
<PAGE>

default under the Omega Master Lease,  the Omega  Returned  Facilities  Note and
RainTree's  revolving  credit  agreement  with  Health  Partners.  See  Item  2,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations -- Recent Developments, and -- Liquidity and Capital Resources."

     RainTree's  inability  to pay the  interest is due in part to  professional
fees and other costs related to the Company's  reorganization and emergence from
bankruptcy,  which were  approximately  $4.2 million greater than estimated.  In
addition,  the bankruptcy had a negative impact on the Company's overall census,
and thus cash flows from  operations.  Although average  occupancy  increased to
77.2% for the month of July 1999 from  76.4% for the 1999  second  quarter,  the
Company  has  not  yet  been  successful  in  restoring   average  occupancy  to
pre-bankruptcy  levels.  In connection  with the  preparation  of the Plan,  the
Company  projected  an average  occupancy  rate of 83% for fiscal  1999.  If the
Company is unable to increase its average  occupancy  levels in the near future,
it will  experience a material  negative impact on its results of operations and
cash flows.

     The deferment of the interest payment will provide RainTree additional time
to  increase  occupancy  and  collect  amounts  due from  Medicare.  The Company
estimates  that by January  1, 2000 it will  collect  between $3 million  and $5
million from  Medicare  intermediaries  related to cost report  settlements  and
routine cost limit exception requests.  However,  there can be no assurance that
the  timing or amount of these  payments  will  occur as  expected,  or that the
Company will be successful in increasing  its occupancy.  The Company's  current
cash shortfall has forced it to consider other strategic alternatives, including
a possible merger or other business combination.

     The  failure  to make the  interest  payment on the  Senior  Secured  Notes
constitutes  an event of  default  under the Omega  Master  Lease,  the  Indiana
Returned  Facilities  Note  and  the  revolving  credit  agreement  with  Health
Partners.  Both Omega and Health  Partners  have  agreed not to  exercise  their
respective  rights and remedies,  as a result of the forbearance  agreement with
the  Senior  Secured  Note  holders.  Should the  Company  default on the Senior
Secured  Notes,  Omega  could  exercise  its  remedies  under the Master  Lease,
including  a  termination  of such  lease.  Health  Partners  could  suspend its
obligations  to make  advances  under  the lines of  credit,  or  terminate  the
agreement,  whereby all outstanding borrowings would become due and payable. Any
material default of RainTree's debt or lease obligations, if uncured, would have
a material adverse effect on its results of operations and cash flows.

     RainTree did not make the $34,000  interest  payment on the Whitehead Notes
that was due July 1,  1999  (Note 3).  The  Company  did not make  this  payment
because these notes are subordinate to the Senior Secured Notes.

     Due to the  uncertainty  surrounding  the  payment  default  on the  Senior
Secured Notes and related cross-defaults,  RainTree has classified the principal
balances of the Senior Secured Notes,  Indiana Returned Facility Note, Whitehead
Notes  and  borrowings  from  Health  Partners  as  current  liabilities  on the
Company's  consolidated balance sheet at June 30, 1999. The financial statements
do not include further  adjustments,  if any, for the possible future effects on
the recoverability of RainTree's long-lived assets.



ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     Certain  statements  contained in this Quarterly Report,  including without
limitation statements containing the words "believes", "anticipates", "intends",
"expects" and words of similar import, are forward-looking statements within the
meaning  of  Section  27A of  the  Securities  Act  of  1933,  as  amended  (the
"Securities  Act") and Section 21E of the  Securities  Exchange Act of 1934,  as
amended (the "Exchange  Act").  While the Company  believes that the assumptions


                                       14
<PAGE>

underlying  these  statements are  reasonable,  such  assumptions  (and thus the
statements  based upon them) could  prove to be  inaccurate.  Important  factors
which could cause results to vary include,  among others: delays in or inability
to conclude transactions; unsuccessful implementation of RainTree's new business
strategy;  general  economic  and  business  conditions;  competition;  loss  of
customers; changes in applicable laws and regulations;  availability,  terms and
deployment  of  capital  in light of recent  losses  and cash  flow  shortfalls;
cancellation  of leases or contracts;  demand  fluctuations;  adverse  uninsured
determinations in any existing or future  litigation or regulatory  proceedings;
health care  statutory or regulatory  changes  which  disfavor the types of care
delivered by the Company;  reversal of the current  limitations in the supply of
long-term care facilities;  and Year 2000 issues.  Important factors which could
cause results to vary also include the factors  discussed in  RainTree's  Annual
Report on Form 10-K for the year ended  December 31, 1998 in "Item 1 - Business"
and "Item 7 - Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations - Risks and  Uncertainties",  as well as factors discussed
elsewhere in this report or in any document incorporated herein by reference.

     The following  material should be read in conjunction with the Consolidated
Financial  Statements  of  the  Company  and  the  related  notes  thereto.  All
references in this  discussion  and analysis to years are to fiscal years of the
Company ended December 31 of such year.

PLAN OF REORGANIZATION

     RainTree operated under the protection of Chapter 11 of the Bankruptcy Code
from May 28, 1998 until January 31, 1999. The restructuring  began on January 7,
1998,  when three of  RainTree's  subsidiaries,  BritWill  Investments-I,  Inc.,
BritWill  Investments-II,  Inc. and BritWill Indiana  Partnership (the "BritWill
Debtors"),  with  operations in Texas and Indiana,  filed for  protection  under
Chapter 11 with the United States  Bankruptcy  Court for the District of Arizona
(the "Bankruptcy  Court").  The Chapter 11 filings were  necessitated by actions
taken by  Omega  to  terminate  or  otherwise  enforce  the  terms of its  lease
agreements  with the  Company.  RainTree,  through its  subsidiaries,  leased 14
long-term care  facilities  from Omega under three master lease  agreements.  In
addition, RainTree leased six facilities from BritWill Texas, which were subject
to a mortgage  in favor of Omega.  BritWill  Texas is an  affiliate  of Bruce H.
Whitehead, a major stockholder and creditor of RainTree and formerly chairman of
its Board of Directors.

     RainTree initiated negotiations to reach a consensual  restructuring of its
debt and lease obligations with Omega, representatives of certain of the holders
of its 12-1/4% Senior Notes and 13% Senior Notes (the "Ad Hoc  Committee"),  the
Whitehead  Affiliates  and the Kremser  Affiliates.  On June 15, 1998,  RainTree
concluded an agreement in principle  with respect to a consensual  restructuring
with  some,  but not all,  of its  creditor  constituencies.  The  agreement  in
principle  formed  the  basis  of the  plan of  reorganization  filed  with  the
Bankruptcy  Court on August 10, 1998. On October 16, 1998,  the amended Plan was
filed. The significant  elements of the Plan are described in Note 3 of Notes to
Consolidated  Financial  Statements.  Under  Bankruptcy Court  supervision,  the
Company  continued to manage and operate its business as a debtor in  possession
and,  as  described  above,  developed  the Plan to  restructure  its  financial
affairs,  including  assuming or rejecting  executory  contracts and leases. The
Plan was confirmed by the Bankruptcy Court effective January 31, 1999.

EMERGENCE FROM CHAPTER 11 AND PLAN OF REORGANIZATION

     The Plan set forth a method for  repaying  or  otherwise  compensating  the
Company's creditors in order of the relative priority of their respective claims
while  seeking to maintain the Company as a going  concern.  The Plan  provided,
among  other  things,  for:  (i)  the  conversion  of  substantially  all of the
Company's  prepetition  liabilities  into  equity  interests  in the Company and
approximately $26 million of Senior Secured Notes due 2003; (ii) cancellation of
all of the prepetition equity interests in the Company, including the old common
stock;  and (iii)  restructuring  of the  Company's  master  leases for  certain
facilities  with Omega.  The Plan became  effective and the Company emerged from
Chapter 11 on the Effective Date. See Note 3 of Notes to Consolidated  Financial
Statements.


                                       15
<PAGE>

RECENT DEVELOPMENTS

     RainTree did not make the $1.3 million semiannual interest payment due July
1, 1999 on the  Senior  Secured  Notes.  The  Indenture  under  which the Senior
Secured Notes were issued  provides for a 45-day grace period before an event of
default  occurs due to nonpayment  of interest.  The grace period for the July 1
payment expired on August 15, 1999. On August 16, 1999, the Company entered into
a forbearance  agreement  with the Indenture  Trustee,  whereby the holders of a
majority  of the Senior  Secured  Notes  agreed not to  exercise  any rights and
remedies under the Indenture and related  documents  arising from the failure to
pay the interest when due. The forbearance agreement expires on August 20, 1999.
The Company  expects to enter into another  agreement that it  anticipates  will
further extend the forbearance of the noteholders'  exercise of their rights and
remedies  under  the  Indenture.  However,  if  RainTree  does not  obtain  this
extension, the holders of the Senior Secured Notes could elect to exercise their
right to accelerate this obligation,  and the debt could become  immediately due
and payable.  In addition,  a default under the Senior  Secured Notes  Indenture
would  result in a default  under the Omega  Master  Lease,  the Omega  Returned
Facilities Note and RainTree's revolving credit agreements with Health Partners.
See "-- Liquidity and Capital Resources."

     RainTree's  inability  to pay the  interest is due in part to  professional
fees and other costs related to the Company's  reorganization and emergence from
bankruptcy,  which were  approximately  $4.2 million greater than estimated.  In
addition,  the bankruptcy had a negative impact on the Company's overall census,
and thus cash flows from  operations.  Although average  occupancy  increased to
77.2% for the month of July 1999 from  76.4% for the 1999  second  quarter,  the
Company  has  not  yet  been  successful  in  restoring   average  occupancy  to
pre-bankruptcy  levels.  In connection  with the  preparation  of the Plan,  the
Company  projected  an average  occupancy  rate of 83% for fiscal  1999.  If the
Company is unable to increase its average  occupancy  levels in the near future,
it will  experience a material  negative impact on its results of operations and
cash flows.

     The deferment of the interest payment will provide RainTree additional time
to  increase  occupancy  and  collect  amounts  due from  Medicare.  The Company
estimates  that by January  1, 2000 it will  collect  between $3 million  and $5
million from  Medicare  intermediaries  related to cost report  settlements  and
routine cost limit exception requests.  However,  there can be no assurance that
the  timing or amount of these  payments  will  occur as  expected,  or that the
Company will be successful in increasing  its occupancy.  The Company's  current
cash shortfall has forced it to consider other strategic alternatives, including
a possible merger or other business combination.

     The  failure  to make the  interest  payment on the  Senior  Secured  Notes
constitutes  an event of  default  under the Omega  Master  Lease,  the  Indiana
Returned  Facilities  Note  and  the  revolving  credit  agreement  with  Health
Partners.  Both Omega and Health  Partners  have  agreed not to  exercise  their
respective  rights and remedies,  as a result of the forbearance  agreement with
the  Senior  Secured  Note  holders.  Should the  Company  default on the Senior
Secured  Notes,  Omega  could  exercise  its  remedies  under the Master  Lease,
including  a  termination  of such  lease.  Health  Partners  could  suspend its
obligations  to make  advances  under  the lines of  credit,  or  terminate  the
agreement,  whereby all outstanding borrowings would become due and payable. Any
material default of RainTree's debt or lease obligations, if uncured, would have
a material adverse effect on its results of operations and cash flows.

     RainTree did not make the $34,000  interest  payment on the Whitehead Notes
that was due July 1,  1999  (Note 3).  The  Company  did not make  this  payment
because these notes are subordinate to the Senior Secured Notes.

     Due to the  uncertainty  surrounding  the  payment  default  on the  Senior
Secured Notes and related cross-defaults,  RainTree has classified the principal
balances of the Senior Secured Notes,  Indiana Returned Facility Note, Whitehead


                                       16
<PAGE>

Notes  and  borrowings  from  Health  Partners  as  current  liabilities  on the
Company's  consolidated balance sheet at June 30, 1999. The financial statements
do not include further  adjustments,  if any, for the possible future effects on
the recoverability of RainTree's long-lived assets.

IMPACT OF FRESH START REPORTING

     When RainTree emerged from bankruptcy,  it adopted fresh start reporting in
accordance with SOP 90-7. Under fresh start reporting,  the reorganization value
of RainTree has been allocated to its assets on a basis substantially consistent
with purchase  accounting.  The portion of reorganization value not attributable
to  specific  assets has been  recorded  as  "Reorganization  Value in Excess of
Amounts  Allocable to  Identifiable  Assets."  Certain fresh start  adjustments,
primarily  related to the adjustment of the Company's  assets and liabilities to
fair market values,  will have a significant effect on RainTree's future results
of operations. The more significant adjustments relate to increased depreciation
expense on property and equipment and reduced amortization expense on intangible
assets.

     As of the Effective  Date,  Reorganized  RainTree  recorded total assets of
$134.0 million,  total debt and lease financing obligations of $71.2 million and
stockholders'  equity  of $19.7  million.  See  Note 4 of Notes to  Consolidated
Financial Statements for further detail regarding fresh start reporting.

DISPOSITIONS

     As part of RainTree's restructuring,  the Company identified long-term care
facilities  for  disposition.  As part of  these  plans,  in  1998  the  Company
terminated the leases of 12 long-term care  facilities.  RainTree's  disposition
program was concluded in January 1999, when the Company terminated the leases of
seven facilities, six of which were leased from Omega.

     On June 3, 1999, RainTree sold certain assets of Sunbelt.  Sunbelt provides
rehabilitation  therapy  services  to  certain  RainTree  facilities  and  third
parties.  An affiliate of Paul Henderson and Paige Plash, who were the president
and vice-president,  respectively, of Sunbelt until April 1, 1999, purchased the
therapy services  contracts of Sunbelt's  outpatient  clinics,  hospitals,  home
health and other  businesses not related to long-term care  facilities.  Messrs.
Henderson and Plash also acquired the therapy services contracts of two RainTree
nursing  facilities.  The sales price was approximately  $1.2 million,  in cash,
plus the assumption of certain Sunbelt  liabilities  amounting to  approximately
$361,000.  On April 14, 1999, RainTree entered into a one-year agreement with an
unrelated  third party to manage  Sunbelt's  remaining  long-term  care  therapy
operations for a monthly fee of $64,000 plus incentives.

RESULTS OF OPERATIONS

     As a result of the  reorganization  and the  implementation  of fresh start
reporting,  the  Company's  results of  operations  after  January 31, 1999 (the
cutoff date used for financial reporting purposes) are not comparable to results
reported in prior periods. See Notes 3 and 4 of Notes to Consolidated  Financial
Statements  for  information on the  implementation  of the Plan and fresh start
reporting.

     To facilitate a meaningful  comparison of RainTree's operating  performance
in the 1999 and 1998 periods,  the following discussion of results of operations
is presented on a traditional comparative basis.  Consequently,  the information
presented  below for the six  months  ended June 30,  1999 does not comply  with
accounting  requirements  for  companies  that  emerge  from  bankruptcy.  These
requirements  call for  separate  reporting  for  Reorganized  RainTree  and the
Predecessor Company.


                                       17
<PAGE>

                RAINTREE HEALTHCARE CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED RESULTS OF OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                     Three Months Ended            Six Months Ended
                                                                          June 30,                      June 30,
                                                                   ----------------------       -----------------------
                                                                     1999          1998         1999 (1)         1998
                                                                   --------       -------       --------       --------
<S>                                                                <C>            <C>           <C>            <C>
Total revenues...............................................      $ 30,949       $48,123       $ 65,776       $102,800

Expenses:
  Wages and related..........................................        17,687        24,471         37,302         52,447
  Other operating............................................        10,861        17,693         23,788         37,176
  Rent.......................................................         3,062         3,702          6,254          7,666
  Interest (excludes contractual interest not accrued on
    prepetition debt of $1,507 in the five months ended
    June 30, 1999 and $1,526 and $1,601 in the three and
    six months ended June 30, 1998, respectively )...........         2,409         4,116          4,253          9,916
  Depreciation and amortization .............................         1,809         2,297          3,623          4,570
                                                                   --------       -------       --------       --------
       Total expenses........................................        35,828        52,279         75,220        111,775
                                                                   --------       -------       --------       --------
Loss from operations.........................................        (4,879)       (4,156)        (9,444)        (8,975)
Reorganization expenses .....................................            --           868         54,597            868
                                                                   --------       -------       --------       --------
Loss before income taxes and extraordinary credit............        (4,879)       (5,024)       (64,041)        (9,843)
Income tax benefit...........................................            --            --             --             --
                                                                   --------       -------       --------       --------
Loss before extraordinary credit.............................        (4,879)       (5,024)       (64,041)        (9,843)
Extraordinary credit - gain on debt discharge................            --            --        113,242             --
                                                                   --------       -------       --------       --------
Net income (loss)............................................      $ (4,879)      $(5,024)      $ 49,201       $ (9,843)
                                                                   ========       =======       ========       ========
---------------------------
<FN>
(1)  This column  represents the combination of historical  results for the five
     months ended June 30, 1999 for Reorganized RainTree and the one month ended
     January 31, 1999 for the Predecessor Company.
</FN>
</TABLE>

     The following table summarizes selected operating statistics.

                                                                At June 30,
                                                           ---------------------
                                                            1999           1998
                                                           ------         ------

Leased and Owned Facilities:
    Number of facilities...............................       35             44
    Number of licensed beds:
       Long-term care..................................    3,405          4,013
       Assisted and independent living.................      214            233

Managed Facilities:
    Number of facilities...............................        6             --
    Number of licensed beds............................      406             --

Institutional Pharmacies:
    Number of outlets..................................        2              2
    Nonaffiliated facilities served....................       42             40

Laboratory Services:
    Number of laboratories.............................        3              3
    Nonaffiliated entities served......................      356            228


                                       18
<PAGE>

     The  following  table  identifies  the  Company's  sources of net operating
revenues from nonaffiliated entities.

<TABLE>
<CAPTION>
                                                      Three Months Ended                Six Months Ended
                                                           June 30,                         June 30,
                                                     --------------------             -------------------
                                                      1999          1998               1999         1998
                                                      ----          ----               ----         ----
<S>                                                   <C>           <C>                <C>          <C>
Percentage of total revenues:
     Long term care ..............................    87.1%         82.9%              84.5%        83.9%
     Therapy services ............................     1.0           7.6                3.8          7.4
     Pharmacy services ...........................     7.0           6.0                6.6          5.5
     Laboratory services .........................     4.9           3.5                5.1          3.2
                                                     -----         -----              -----        -----
         Total....................................   100.0%        100.0%             100.0%       100.0%
                                                     =====         =====              =====        =====
</TABLE>

     RainTree's  revenues  fluctuate  from facility to facility based on various
factors, including total capacity,  occupancy rates, reimbursement methodologies
and rates among the payor categories, payor mix and the scope and utilization of
the Company's ancillary services.  In general, the Company believes that private
pay  and  Medicare  sources  are  more  profitable  to the  Company  than  other
governmental reimbursement sources.

     Sources of net patient revenues and patient mix by payor type are set forth
below (long-term care only).

<TABLE>
<CAPTION>
                                                      Three Months Ended                Six Months Ended
                                                           June 30,                         June 30,
                                                     --------------------             -------------------
                                                      1999          1998               1999         1998
                                                      ----          ----               ----         ----
<S>                                                   <C>           <C>                <C>          <C>
Medicare .........................................    22.1%         29.9%              22.6%        30.9%
Private and other.................................    17.1          16.0               17.3         16.2
                                                     -----         -----              -----        -----
Quality mix.......................................    39.2          45.9               39.9         47.1
Medicaid .........................................    60.8          54.1               60.1         52.9
                                                     -----         -----              -----        -----
     Total........................................    100.0%       100.0%             100.0%       100.0%
                                                     =====         =====              =====        =====
AVERAGE OCCUPANCY
Nursing facilities...............................     78.0%         82.4%              78.0%        81.8%
Independent and assisted living facilities.......     49.9          58.8               51.7         59.2
</TABLE>


THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998

     In the 1999 second  quarter,  RainTree  recorded a net loss of $4.9 million
compared to a net loss of $5.0 million in the prior year  quarter.  Net loss for
the 1998 second quarter includes  reorganization expenses amounting to $868,000.
Loss  from  operations  amounted  to $4.9  million  in the 1999  second  quarter
compared to $4.2 million in the same period in 1998.

     Total revenues  decreased $17.2 million,  or 35.7%, to $30.9 million in the
1999 second  quarter from $48.1  million in the  comparable  1998  quarter.  Net
patient service revenues decreased from $47.8 million in the 1998 second quarter
to $30.6 million in the current  period.  Patient days decreased from 321,881 in
the 1998 period to 251,517 in the current period.  Net patient service  revenues
recorded by the  long-term  care  facilities  decreased  by  approximately  $9.4
million, of which $5.1 million is attributable to the disposition of facilities.
The long-term care facilities  experienced declines in occupancy and quality mix
(the  percentage of revenues from Medicare and private pay sources)  compared to
the prior year  quarter.  The  Company  believes  that the  decrease  in average
occupancy in 1999 is due  primarily to the negative  perception of RainTree as a


                                       19
<PAGE>

result of the  bankruptcy.  Quality mix was impacted by both the  bankruptcy and
the new Medicare  Prospective Payment System ("PPS"),  which applied to RainTree
on January 1, 1999. Under PPS,  skilled nursing  facilities are paid a fixed per
diem rate for  virtually  all  covered  services.  RainTree  estimates  that its
average daily Medicare rate under PPS will be approximately  18% lower in fiscal
1999 than in 1998.

     Therapy and pharmacy  company  revenues also  decreased from the prior year
period because (i) on April 1, 1999, the Company sold most of Sunbelt's  therapy
contracts  that were  unrelated  to RainTree  nursing  facilities;  and (ii) the
pharmacy  company's  customers have negotiated lower contract rates in an effort
to control  costs in the PPS  environment.  In  addition,  under PPS there is an
annual per-patient cap of $1,500 on reimbursement for combined Part B outpatient
physical  and  speech  therapy  services  and an annual  cap of $1,500 on Part B
occupational therapy services. See "-Dispositions."

     Wages and related  expenses  decreased $6.8 million,  or 27.7%,  from $24.5
million in the 1998 second quarter to $17.7 million in the current quarter.  The
decrease is due  primarily  to: (i)  facility  dispositions,  which  account for
approximately  $2.7  million of the  decrease;  and (ii) a decrease in ancillary
company  expenses  of  approximately  $4.4  million.  Most  of the  decrease  in
ancillary  company  expense  is  related  to  therapy  operations.  Sunbelt  has
experienced  a decrease  in the volume of  services  provided as a result of the
sale of contracts and of PPS, and has also changed its compensation structure in
order  to  control  costs.  In  the  1999  second  quarter,   RainTree  recorded
compensation  expense  amounting to $393,000  related to Restricted  Stock Units
issued. See Note 7 of Notes to Consolidated Financial Statements.

     Other  operating  expenses  decreased  $6.8 million,  or 38.6%,  from $17.7
million in the 1998 second quarter to $10.9 million in the 1999 second  quarter.
Approximately  $2.3  million  of the  decrease  is due  to  the  disposition  of
facilities  and  $684,000  is  attributable  to  the  ancillary  companies.  The
remaining  decrease  is due  primarily  to a  reduction  in  ancillary  expenses
recorded by the long-term care facilities. RainTree renegotiated its therapy and
pharmacy provider contracts in response to the reimbursement  changes under PPS.
The  provision for doubtful  accounts  increased by $320,000 from the prior year
period due to an increase in the age of nursing facility receivables.

     Rent expense decreased from $3.7 million in the 1998 second quarter to $3.1
million in the 1999 period.  The decrease is due primarily to the disposition of
facilities.

     Interest  expense  amounted  to $2.4  million  in the 1999  second  quarter
compared to $4.1 million in the 1998 second quarter.  The decrease is due to the
decrease in RainTree's  debt as a result of emergence from bankruptcy on January
31, 1999.

     Depreciation  and amortization  expense  decreased from $2.3 million in the
1998 second quarter to $1.8 million in the 1999 second quarter.  The decrease is
due to the net  reduction  in  intangible  assets  resulting  from  fresh  start
reporting and the write-down of impaired assets in the fourth quarter of 1998.

     RainTree  did not record  income tax  expense or benefit in the  current or
prior year periods.  In both periods,  the Company  generated net losses for tax
purposes.  The discharge of debt and other  obligations  on the  Effective  Date
resulted  in  an  extraordinary   gain  for  financial   reporting  purposes  of
approximately  $113.2 million. The Company did not record tax expense related to
this gain.  The Internal  Revenue Code provides that, in a Chapter 11 bankruptcy
case,  income  normally  arising  from the  discharge  of debt is excluded  from
taxable  income.  However,  to the extent that income from discharge is excluded
from income,  taxpayers must reduce  specified tax  attributes  that include net
operating losses. The Company anticipates that, as a result of the restructuring
of its debt obligations,  its net operating losses will be substantially reduced
or limited. Therefore, the Company has established a valuation allowance against
its net operating loss carryforward benefits.


                                       20
<PAGE>

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

     For the six-month period ended June 30, 1999,  RainTree recorded net income
of $49.2  million  compared  to a net loss of $9.8  million  in the  prior  year
period. The 1999 results include a $113.2 million gain on debt discharged in the
bankruptcy,  as well as  reorganization  expenses  amounting  to $54.6  million.
RainTree  recorded losses from operations  amounting to $9.4 million in the 1999
period and $9.0 million in the 1998 period.

     Total revenues  decreased $37.0 million,  or 36.0%, to $65.8 million in the
1999 period from  $102.8  million in the  comparable  1998  period.  Net patient
service  revenues  decreased  from  $101.9  million in the 1998  period to $65.0
million in the current  period.  Patient days decreased from 683,873 in the 1998
period to 510,117 in the current period.  Net patient service revenues  recorded
by the long-term care facilities  decreased by approximately  $22.4 million,  of
which $13.4  million is  attributable  to the  disposition  of  facilities.  The
long-term care facilities experienced declines in occupancy and quality mix (the
percentage of revenues  from  Medicare and private pay sources)  compared to the
prior year. The Company believes that the decrease in average  occupancy in 1999
is due  primarily  to the  negative  perception  of  RainTree as a result of the
bankruptcy. Quality mix was impacted by both the bankruptcy and the new Medicare
Prospective Payment System,  which applied to RainTree on January 1, 1999. Under
PPS, skilled nursing facilities are paid a fixed per diem rate for virtually all
covered services.  RainTree estimates that its average daily Medicare rate under
PPS will be approximately 18% lower in fiscal 1999 than in 1998.

     Therapy and pharmacy  company  revenues also  decreased from the prior year
period because (i) on April 1, 1999, the Company sold most of Sunbelt's  therapy
contracts  that were  unrelated  to RainTree  nursing  facilities;  and (ii) the
ancillary  companies'  nursing facility customers have negotiated lower contract
rates in an effort to control costs in the PPS environment.  In addition,  under
PPS there is an annual  per-patient cap of $1,500 on reimbursement  for combined
Part B  outpatient  physical  and speech  therapy  services and an annual cap of
$1,500 on Part B occupational therapy services. See "-Dispositions."

     Wages and related expenses  decreased $15.1 million,  or 28.9%,  from $52.4
million in the 1998 period to $37.3 million in the current period.  The decrease
is due primarily to: (i) facility dispositions,  which account for approximately
$7.2 million of the decrease;  and (ii) a decrease in ancillary company expenses
of approximately $7.6 million. Most of the decrease in ancillary company expense
is related to therapy  operations.  Sunbelt  has  experienced  a decrease in the
volume of services provided as a result of the sale of contracts and of PPS, and
has also changed its  compensation  structure in order to control costs.  In the
1999  period,  RainTree  recorded  compensation  expense  amounting  to $393,000
related to Restricted  Stock Units issued.  See Note 7 of Notes to  Consolidated
Financial Statements.

     Other  operating  expenses  decreased $13.4 million,  or 36.0%,  from $37.2
million in the 1998 period to $23.8 million in the current period. Approximately
$5.7  million of the  decrease  is due to the  disposition  of  facilities.  The
remaining  decrease  is due  primarily  to a  reduction  in  ancillary  expenses
recorded by the long-term care facilities. RainTree renegotiated its therapy and
pharmacy provider contracts in response to the reimbursement  changes under PPS.
The  provision  for  doubtful  accounts  increased  by $1.9 from the prior  year
period.  The increase is due to Sunbelt  receivables  that were determined to be
uncollectible and an increase in the age of nursing facility receivables.

     Rent expense decreased from $7.7 million in the 1998 period to $6.3 million
in the  1999  period.  The  decrease  is due  primarily  to the  disposition  of
facilities.


                                       21
<PAGE>

     Interest  expense  amounted to $4.3 million in the 1999 period  compared to
$9.9  million  in the  1998  period.  The  decrease  is due to the  decrease  in
RainTree's debt as a result of emergence from bankruptcy on January 31, 1999.

     Depreciation  and amortization  expense  decreased from $4.6 million in the
1998 period to $3.6  million in the current  period.  The decrease is due to the
net reduction in intangible  assets resulting from fresh start reporting and the
write-down of impaired assets in the fourth quarter of 1998.

     RainTree  did not record  income tax  expense or benefit in the  current or
prior year periods.  In both periods,  the Company  generated net losses for tax
purposes.  The discharge of debt and other  obligations  on the  Effective  Date
resulted  in  an  extraordinary   gain  for  financial   reporting  purposes  of
approximately  $113.2 million. The Company did not record tax expense related to
this gain.  The Internal  Revenue Code provides that, in a Chapter 11 bankruptcy
case,  income  normally  arising  from the  discharge  of debt is excluded  from
taxable  income.  However,  to the extent that income from discharge is excluded
from income,  taxpayers must reduce  specified tax  attributes  that include net
operating losses. The Company anticipates that, as a result of the restructuring
of its debt obligations,  its net operating losses will be substantially reduced
or limited. Therefore, the Company has established a valuation allowance against
its net operating loss carryforward benefits.

     Reorganization  expenses  recorded  in January  1999 in the amount of $54.6
million are comprised primarily of fresh start adjustments and professional fees
related to the bankruptcy and restructuring. See Note 4 of Notes to Consolidated
Financial Statements.


LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW PROVIDED BY OPERATING ACTIVITIES

     RainTree had a cash balance of $3.2 million and a working  capital  deficit
of $41.0 million at June 30, 1999. Of this deficit,  $35.1 million is due to the
current   classification   of   long-term   debt  in  default.   See   "--Recent
Developments."

     RainTree's  operating activities used net cash amounting to $2.4 million in
the five months  ended June 30,  1999.  The net outflow is due to the  Company's
operating losses and fluctuations in current assets and liabilities.

     Net  accounts  receivable  decreased  by  approximately  $5.7  million from
December  31, 1998 to June 30,  1999,  primarily  in  connection  with  facility
dispositions  and the sale of  certain  Sunbelt  receivables.  During  this same
period, the allowance for doubtful accounts as a percentage of total receivables
decreased from 29.9% to 17.8%.  The  percentage  decrease is because the Sunbelt
receivables sold and disposition  facilities'  receivables that were written off
had a proportionately  higher percentage of reserves for doubtful accounts.  See
"-Results of Operations."  RainTree  anticipates that its allowance for doubtful
accounts may continue to fluctuate in the future and will depend, in large part,
on the mix of  revenues,  as well as the timing of payments  by  private,  third
party and governmental payors. While the Company believes that the allowance for
doubtful accounts is adequate at June 30, 1999, if the Company is not successful
in collecting  its accounts  receivable  on a timely basis,  the Company will be
required to increase its provision for doubtful accounts.

CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES

     During the bankruptcy  proceedings,  RainTree  financed its working capital
needs out of its operating  cash flows and under the HCFP DIP  Facility,  an $11
million accounts  receivable-backed  revolving credit facility.  Interest on the
HCFP DIP  Facility  accrued at the prime rate plus 3.0%  (10.75% at December 31,
1998). As of January 31, 1999,  borrowings under the HCFP DIP Facility  amounted
to approximately $8.0 million.  On the Effective Date, the HCFP DIP Facility was


                                       22
<PAGE>

replaced  partially  with a new $7 million  revolving line of credit from Health
Partners (the "First  Line").  Interest on amounts  outstanding  under the First
Line  accrues  at the prime rate plus  0.85%.  As of June 30,  1999,  borrowings
outstanding under the First Line totaled approximately $3.6 million, which based
on the level of eligible accounts receivable,  was the maximum amount that could
be borrowed at that time. On May 14, 1999,  the Company  entered into another $7
million line of credit with Health Partners (the "Second Line").  Total combined
borrowings  under the First  Line and Second  Line  cannot  exceed $12  million.
Availability  under the Second Line is subject to the Company having met certain
requirements,  including  sufficient  eligible accounts receivable and quarterly
financial  covenants  contained in the Omega  Master  Lease.  For the  quarterly
period  ended June 30,  1999,  the  Company did not attain the  necessary  fixed
charge coverage ratio of 1.55 and is therefore  currently  limited to borrowings
of $2.0 million under the Second Line, which was the balance at June 30, 1999.

     Net cash provided by investing activities in the five months ended June 30,
1999  amounted to $994,000.  The Company  received $1.2 million in cash from the
sale of  Sunbelt  assets and lease and  insurance  deposits  decreased  by a net
amount of approximately $1.1 million.  Routine capital expenditures  amounted to
approximately $1.4 million.

     Net cash provided by financing activities in the five months ended June 30,
1999  amounted to  approximately  $3.0  million,  primarily as a result of a net
increase in borrowings.

        At June 30, 1999, RainTree had approximately $76.6 million of total debt
and lease  financing  obligations.  The Company also has aggregate  minimum rent
obligations of approximately  $132 million (subject to certain increases) during
the remainder of the initial terms and first renewal periods under its operating
leases. RainTree's ability to meet its debt service and lease obligations in the
next year and beyond  will depend on its  ability to  generate  sufficient  cash
flows from  operations.  Since the Effective  Date,  the Company has focused its
efforts  on  efficiently  providing  quality  patient  care,  improving  average
occupancy and collecting  accounts  receivable.  However,  the Company's current
cash shortfall has forced it to consider other strategic alternatives, including
a possible merger or other business combinations. See "-- Recent Developments."

     The terms of certain of RainTree's debt and lease  obligations  require the
Company to meet certain  financial  and  reporting  covenants.  The terms of the
Omega Master Lease require that RainTree  maintain  specified  operating ratios,
levels of working  capital and net worth.  The Indenture for the Senior  Secured
Notes  includes  covenants  that  prohibit or limit asset  sales,  acquisitions,
incurrence of  additional  debt and liens,  the making of  restricted  payments,
affiliate  transactions,  engaging  in certain  mergers and  consolidations  and
entering new lines of business.  For example,  should  RainTree sell  collateral
securing the Senior Secured Notes,  any net cash proceeds from such sale must be
used to redeem Senior Secured Notes.

IMPACT OF THE YEAR 2000 ISSUE

     Some of RainTree's  information systems have  time-sensitive  software that
will not properly recognize the year 2000. Based on an on-going assessment,  the
Company has determined that it will be required to modify or replace significant
portions of its software so that its computer  systems  will  function  properly
with respect to dates in the year 2000 and  thereafter.  RainTree  believes that
with  modifications  to existing  software and conversions to new software,  the
Company  will be year 2000 ready by the end of 1999 and the year 2000 issue will
not pose significant operational problems for its computer systems.

     RainTree  has  completed  a detailed  inventory  and  analysis  of computer
hardware, software and operating systems. The Company will utilize both internal
and  external  resources  to  reprogram,  or replace,  and test the hardware and
software  for year  2000  readiness.  The scope of the year  2000  project  also
encompasses  consideration  of  potential  impacts  on  the  Company's  business


                                       23
<PAGE>

operations.   The  Company  is  reviewing   internal  business   operations  and
relationships  with  external  business  partners to assess the current level of
compliance.  RainTree is in the  process of testing  its systems and  developing
contingency  plans with the goal of  achieving  year 2000  readiness  by October
1999.

     During 1998 and the first quarter of 1999, RainTree replaced  substantially
all of its computer equipment in connection with implementation of the Plan. The
Company believes the new equipment is year 2000 compliant. The Company estimates
that the  incremental  cost to upgrade  existing  software  to make it year 2000
compliant  will not  exceed  $150,000.  As of June 30,  1999,  the  Company  had
incurred approximately $50,000 of such costs.

     RainTree has had ongoing formal  communications with significant  suppliers
and payors to determine the extent to which the Company's systems and operations
are vulnerable to those third parties'  failure to remediate their own year 2000
issues.  Examples of such  issues  include,  but are not limited to,  electronic
interfaces with external agents such as payors, suppliers and banks. The ability
of third parties with which RainTree  transacts  business to adequately  address
their year 2000 issues is outside the Company's control.  Although RainTree will
seek to replace  any of its  current  vendors who are unable to become year 2000
ready  in a  timely  manner,  there  can  be no  assurance  that  the  Company's
operations  will not be  adversely  affected  by the  ability of third  parties,
including the federal and state governments on which RainTree's operations rely,
to also manage the year 2000 issue.

     The Company will continue to assess each of its systems and their year 2000
readiness. At this time, the Company believes that appropriate actions are being
taken and expects to complete  its overall  year 2000  remediation  prior to any
anticipated  impact on its operations.  However,  there can be no assurance that
these  assumptions will be achieved,  and actual results could differ materially
from  those  anticipated.  Specific  factors  that  might  cause  such  material
differences  include,  but are not  limited  to,  the  availability  and cost of
personnel  trained in this area,  the ability to locate and correct all relevant
computer codes, third party modification plans and similar uncertainties.

ITEM 3 IS NOT APPLICABLE


                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     RainTree is, and may in the future be, party to  litigation  arising in the
ordinary  course of its business.  It is also  routinely  subject to surveys and
investigations  by  regulators  and  payors.  There  can  be no  assurance  that
RainTree's  insurance  coverage  will  be  adequate  to  cover  all  liabilities
occurring  by reason of such claims or  investigations  or that any such matters
that are not covered by  insurance  will not have an adverse  effect on Unison's
business.

     Reference is made to the securities  class action lawsuits  entitled Martin
Grossman, et al. v. Unison HealthCare Corporation,  et al., USDC No. CIV 97-0583
PHX SMM (the "Federal Action"), and Jeffrey D. VanDyke v. Cruttenden Roth, Inc.,
Wheat First Butcher Singer,  Individually and as  Representatives of a Defendant
Underwriter  Class, and Bruce H. Whitehead,  Unison  Healthcare  Corp.,  John T.
Lynch, Jr., Trouver Capital Partners, L.P., Jerry M. Walker, Phillip R. Rollins,
Craig R. Clark,  and Paul J. Contris,  Case No. 779111  (Orange County Sup. Ct.)
(the "State Action") described on page 22 of RainTree's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 (the "First  Quarter Form 10-Q").  The
parties in the Federal Action  reached a settlement  that is expected to resolve
both the Federal and State Actions in their entirety.  The settlement includes a
cash payment by the  Company's  primary  insurer  amounting to $4.25 million and
1,000,000  shares of old Common  Stock.  Under the Plan,  old  Common  Stock was
converted into warrants; under the proposed settlement, class members who are to
receive  RainTree  shares will  receive a pro rata share of such  warrants.  The
settlement was approved by the Bankruptcy  Court on December 30, 1998 and by the
district court in the Federal Action on April 28, 1999.


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<PAGE>

     Reference is made to an action  styled John D.  Filkoski,  et al. V. Unison
HealthCare Corporation, et al., filed in Colorado Superior Court on May 27, 1998
(the "Colorado Action") and described on page 22 of the First Quarter Form 10-Q.
Motions to dismiss the Colorado  Action for lack of personal  jurisdiction  were
filed by the individual defendants, except for Jerry M. Walker. Mr. Walker filed
a motion to stay the Colorado Action pending plaintiffs'  decision as to whether
they would  participate in the settlement of the  Securities  Class Actions.  On
August 6, 1999,  the Colorado  District  Court Judge granted  motions to dismiss
with respect to the former nonemployee directors,  and denied motions to dismiss
with respect to certain current and former officers of the Company. Mr. Walker's
motion to stay was granted because the Court was unable to determine whether the
plaintiffs have sufficiently met the legal  requirements for "opting out" of the
Securities Class Actions.

     Reference  is made to an action  styled  Healthprime,  Inc.,  HP/Healthcare
Acquirors,   Inc.,  Markleysburg  Healthcare  Investors,  L.P.,  Marshall  Manor
Healthcare  Services,  Inc.,  and  Lake  City  Nursing  Homes,  Inc.  v.  Unison
HealthCare  Corporation  and Sunquest SPC, Inc.,  filed in the Superior Court of
Fulton County,  Georgia (Case No. E.68081) (the "Georgia Action"), and described
on page 23 of the First  Quarter Form 10-Q.  On November  11, 1998,  the Company
filed an action  in  Bankruptcy  Court  (Unison  v.  HealthPrime,  Inc.  et al.,
Adversary  Proceeding No. 98-808-GBN) seeking to recover management fees related
to these facilities totaling $1.6 million plus interest and attorneys' fees. The
defendants have asserted  counterclaims  containing allegations made against the
Company in the Georgia  Action.  The Georgia  Action was stayed by the Company's
Chapter 11  proceedings.  On June 15, 1999,  the  Bankruptcy  Court  granted the
defendants' motion to dismiss the Company's complaint and lifted the stay of the
Georgia Action.

     Reference is made to actions styled American  Professional  Holdings,  Inc.
[sic] v. John L. Maguire, W. Jerome McGee, and Harold N. McKinney,  filed in the
Bankruptcy Court (Adversary No. 98-861), and American Professional Holding, Inc.
v. Associated Solutions, Inc., also filed in the Bankruptcy Court (Adversary No.
98-862) and described on page 23 of the First Quarter Form 10-Q.  The defendants
have answered the complaints,  admitting the material  allegations  therein.  In
August 1999,  the  defendants  filed  counterclaims  alleging  common law fraud.
RainTree denies defendants' allegations and intends to pursue its claims.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     RainTree did not make the $1.3 million semiannual interest payment due July
1, 1999 on the  Senior  Secured  Notes.  The  Indenture  under  which the Senior
Secured Notes were issued  provides for a 45-day grace period before an event of
default  occurs due to nonpayment  of interest.  The grace period for the July 1
payment expired on August 15, 1999. On August 16, 1999, the Company entered into
a forbearance  agreement  with the Indenture  Trustee,  whereby the holders of a
majority of the Senior  Secured Notes have agreed not to exercise any rights and
remedies under the Indenture and related  documents  arising from the failure to
pay the interest when due. The forbearance agreement expires on August 20, 1999.
The Company  expects to enter into another  agreement that it  anticipates  will
further extend the forbearance of the noteholders'  exercise of their rights and
remedies  under  the  Indenture.  However,  if  RainTree  does not  obtain  this
extension,  the holders of the Senior  Secured  Notes could elect to  accelerate
this  obligation,  and the debt could become  immediately  due and  payable.  In
addition,  a default under the Senior Secured Notes  Indenture would result in a
default under the Omega Master Lease,  the Omega  Returned  Facilities  Note and
RainTree's  revolving  credit  agreement  with  Health  Partners.  See  Item  2,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations -- Recent Developments, and -- Liquidity and Capital Resources."

     The  failure  to make the  interest  payment on the  Senior  Secured  Notes
constitutes  an event of  default  under the Omega  Master  Lease,  the  Indiana
Returned  Facilities  Note  and  the  revolving  credit  agreement  with  Health
Partners.  Both Omega and Health  Partners  have  agreed not to  exercise  their


                                       25
<PAGE>

respective  rights and remedies,  as a result of the forbearance  agreement with
the  Senior  Secured  Note  holders.  Should the  Company  default on the Senior
Secured  Notes,  Omega  could  exercise  its  remedies  under the Master  Lease,
including  a  termination  of such  lease.  Health  Partners  could  suspend its
obligations  to make  advances  under  the lines of  credit,  or  terminate  the
agreement,  whereby all outstanding borrowings would become due and payable. Any
material default of RainTree's debt or lease obligations, if uncured, would have
a material adverse effect on its results of operations and cash flows.

     RainTree did not make the $34,000  interest  payment on the Whitehead Notes
that was due July 1,  1999  (Note 3).  The  Company  did not make  this  payment
because these notes are subordinate to the Senior Secured Notes.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits:

         10.1  Employment  Agreement dated as of April 28, 1999 between RainTree
               Healthcare  Corporation and Michael A. Jeffries  (incorporated by
               reference to Exhibit 10.31 to the Company's  Quarterly  Report on
               Form 10-Q for the period ended March 31, 1999)

         10.2  Employment  Agreement dated as of April 28, 1999 between RainTree
               Healthcare  Corporation and Jim Fields (incorporated by reference
               to Exhibit 10.32 to the Company's  Quarterly  Report on Form 10-Q
               for the period ended March 31, 1999)

         10.3  Employment  Agreement dated as of April 28, 1999 between RainTree
               Healthcare  Corporation  and  Nir E.  Margalit  (incorporated  by
               reference to Exhibit 10.33 to the Company's  Quarterly  Report on
               Form 10-Q for the period ended March 31, 1999)

         10.4  Employment  Agreement dated as of April 28, 1999 between RainTree
               Healthcare   Corporation  and  Terry  Troxell   (incorporated  by
               reference to Exhibit 10.34 to the Company's  Quarterly  Report on
               Form 10-Q for the period ended March 31, 1999)

         10.5  Loan and  Security  Agreement  dated  May 11,  1999 by and  among
               RainTree  Healthcare  Corporation,  BritWill  Healthcare Company,
               BritWill  Funding   Corporation,   Cedar  Care,  Inc.,   Sherwood
               Healthcare  Corp.,   BritWill   Investments-I,   Inc.,   BritWill
               Investments-II,  Inc., BritWill Indiana  Partnership,  Brookshire
               House, Inc.,  Christopher Nursing Center,  Inc., Amberwood Court,
               Inc., The Arbors Health Care Corporation, Los Arcos, Inc., Pueblo
               Norte,  Inc., Rio Verde Nursing Center,  Inc.,  Signature  Health
               Care  Corporation,  Signature  Management  Group,  Inc., and HCFP
               Funding, Inc.  (incorporated by reference to Exhibit 10.36 to the
               Company's  Quarterly  Report  on Form 10-Q for the  period  ended
               March 31, 1999)

         10.6  Revolving  Credit Note dated May 11,  1999 by and among  RainTree
               Healthcare  Corporation,  BritWill Healthcare  Company,  BritWill
               Funding Corporation, Cedar Care, Inc., Sherwood Healthcare Corp.,
               BritWill  Investments-I,  Inc.,  BritWill  Investments-II,  Inc.,
               BritWill Indiana Partnership, Brookshire House, Inc., Christopher
               Nursing Center,  Inc.,  Amberwood Court,  Inc., The Arbors Health
               Care Corporation,  Los Arcos, Inc., Pueblo Norte, Inc., Rio Verde
               Nursing  Center,   Inc.,   Signature  Health  Care   Corporation,
               Signature   Management  Group,  Inc.,  and  HCFP  Funding,   Inc.
               (incorporated  by  reference  to Exhibit  10.37 to the  Company's
               Quarterly  Report on Form  10-Q for the  period  ended  March 31,
               1999)

         27    Financial Data Schedule (included only in the EDGAR filing)


                                       26
<PAGE>


     (b)  Reports filed on Form 8-K:

          None

ITEMS 2, 4 AND 5 ARE NOT APPLICABLE.



                                   SIGNATURES

Pursuant  to the  requirements  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.

                                          RAINTREE HEALTHCARE CORPORATION
                                                    (Registrant)



Date:   August 19, 1999                   /s/ JIMMY L. FIELDS
                                          --------------------------------------
                                          Jimmy L. Fields
                                          Executive Vice President and Chief
                                          Financial Officer (Principal Financial
                                          Officer)

                                          /s/ WARREN K. JERREMS
                                          --------------------------------------
                                          Warren K. Jerrems
                                          Vice President and Chief Accounting
                                          Officer (Principal Accounting Officer)



                                       27