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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 September 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 November 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 September 30, 1999
          (unaudited) and December 31, 1998...........................     3

        Consolidated Statements of Operations for the three months
           and eight months ended September 30, 1999, the one month
           ended January 31, 1999, and the three months and nine
           months ended September 30, 1998 (unaudited)................     4

        Consolidated Statements of Cash Flows for the eight months
           ended September 30, 1999, the one month ended January 31,
           1999 and the nine months ended September 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 ...........................................................    26


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)

<TABLE>
<CAPTION>
                                                                                Reorganized   |   Predecessor
                                                                                  Company     |     Company
                                                                               September 30,  |   December 31,
                                                                                   1999       |       1998
                                                                               -------------  |   ------------
                                                                                (unaudited)   |
<S>                                                                               <C>              <C>
Assets                                                                                        |
Current assets:                                                                               |
  Cash and cash equivalents ................................................      $   6,703   |    $  16,863
  Accounts receivable ......................................................         11,948   |       22,621
  Prepaid expenses and other current assets ................................          3,168   |        8,670
                                                                                  ---------   |    ---------
     Total current assets ..................................................         21,819   |       48,154
Property and equipment, net ................................................         45,371   |       29,227
Reorganization value in excess of amounts allocable to identifiable assets..         49,112   |           --
Lease operating rights and other intangible assets, net ....................          1,017   |       58,960
Goodwill, net ..............................................................             --   |       24,816
Deposits ...................................................................          6,665   |        9,383
                                                                                  ---------   |    ---------
                                                                                  $ 123,984   |    $ 170,540
                                                                                  =========   |    =========
Liabilities and stockholders' equity (deficit)                                                |
Current liabilities:                                                                          |
  Accounts payable .........................................................      $  10,171   |    $  10,815
  Accrued expenses .........................................................         16,109   |       15,175
  Current portion of notes payable and long-term debt ......................            380   |        1,012
  Long term debt in default classified as current ..........................         34,643   |           --
                                                                                  ---------   |    ---------
     Total current liabilities .............................................         61,303   |       27,002
Liabilities subject to compromise ..........................................             --   |      166,870
Notes payable and long-term debt ...........................................          4,513   |        7,132
Lease financing obligation .................................................         38,200   |       38,200
Deferred taxes .............................................................          9,000   |        5,456
Leasehold liability, net ...................................................             --   |        4,058
Other liabilities ..........................................................          1,415   |          899
                                                                                  ---------   |    ---------
     Total liabilities .....................................................        114,431   |      249,617
Stockholders' equity (deficit):                                                               |
  Common stock, $.001 par value; authorized 10,000,000 shares;                                |
    7,593,697 shares issued and outstanding at September 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 ...............................................         20,575   |       36,211
  Retained earnings (accumulated deficit) ..................................        (10,603)  |     (115,293)
  Unearned compensation ....................................................           (427)  |           --
                                                                                  ---------   |    ---------
     Net stockholders' equity (deficit) ....................................          9,553   |      (79,077)
                                                                                  ---------   |    ---------
                                                                                  $ 123,984   |    $ 170,540
                                                                                  =========   |    =========
</TABLE>
  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   Eight Months  |   One Month   Three Months    Nine Months
                                                            Ended         Ended      |     Ended        Ended           Ended
                                                        September 30,  September 30, |  January 31,  September 30,  September 30,
                                                             1999          1999      |     1999         1998            1998
                                                        -------------  ------------- |  -----------  -------------  -------------
                                                                                     |
<S>                                                        <C>           <C>             <C>            <C>          <C>
Total revenues........................................     $31,459       $ 84,342    |   $ 12,893       $44,921      $147,721
                                                                                     |
Expenses:                                                                            |
  Wages and related...................................      17,496         47,724    |      7,074        23,642        76,089
  Other operating.....................................      10,584         28,284    |      6,088        17,779        54,955
  Rent................................................       3,061          8,203    |      1,112         3,606        11,272
  Interest (excludes contractual interest not accrued                                |
    on prepetition debt of $1,507 in January 1999 and                                |
    $4,965 and $6,565 in the three and nine months                                   |
    ended September 30, 1998, respectively............       2,158          5,966    |        445           826        10,742
  Depreciation and amortization ......................       1,767          4,768    |        622         2,299         6,869
                                                           -------       --------    |   --------       -------      --------
       Total expenses.................................      35,066         94,945    |     15,341        48,152       159,927
                                                           -------       --------    |   --------       -------      --------
Loss from operations..................................      (3,607)       (10,603)   |     (2,448)       (3,231)      (12,206)
Reorganization expenses ..............................          --             --    |     54,597           907         1,775
                                                           -------       --------    |   --------       -------      --------
Loss before income taxes and extraordinary credit.....      (3,607)       (10,603)   |    (57,045)       (4,138)      (13,981)
Income tax benefit....................................          --             --    |         --            --            --
                                                           -------       --------    |   --------       -------      --------
Loss before extraordinary credit......................      (3,607)       (10,603)   |    (57,045)       (4,138)      (13,981)
Extraordinary credit - gain on debt discharge.........          --             --    |    113,242            --            --
                                                           -------       --------    |   --------       -------      --------
Net income (loss).....................................     $(3,607)      $(10,603)   |   $ 56,197       $(4,138)     $(13,981)
                                                           =======       =========   |   ========       =======      ========
                                                                                     |
Net income (loss) per share:                                                         |
  Loss before income taxes and extraordinary credit...     $ (0.47)      $  (1.40)   |   $  (8.88)      $ (0.64)     $  (2.18)
  Extraordinary credit - gain on debt discharge.......          --             --    |      17.63            --            --
                                                           -------       --------    |   --------       -------      --------
  Net income (loss) per share.........................     $ (0.47)      $  (1.40)   |   $   8.75       $ (0.64)     $  (2.18)
                                                           =======       ========    |   ========       =======      ========
                                                                                     |
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
                                                                                    Eight Months   |     One Month   Nine Months
                                                                                       Ended       |       Ended        Ended
                                                                                    September 30,  |    January 31,  September 30,
                                                                                        1999       |        1999         1998
                                                                                    -------------  |    -----------  -------------
<S>                                                                                  <C>                 <C>            <C>
Net cash provided by (used in) operating activities (including changes                             |
  in all operating assets and liabilities)...................................        $    871      |     $ (2,937)      $ 4,348
                                                                                     --------      |     --------       -------
INVESTING ACTIVITIES:                                                                              |
Purchase of equipment and leasehold improvements.............................          (1,891)     |         (218)       (2,124)
Sale of assets...............................................................           1,220      |           --            --
(Increase) decrease in lease and insurance deposits..........................           2,731      |          (13)       (1,547)
                                                                                     --------      |     --------       -------
Net cash provided by (used in) investing activities..........................           2,060      |         (231)       (3,671)
                                                                                     --------      |     --------       -------
FINANCING ACTIVITIES:                                                                              |
Net increase (decrease) in revolving lines of credit.........................           5,145      |        1,012          (533)
Debt payments................................................................            (887)     |          (10)       (1,621)
Change in outstanding checks.................................................          (2,049)     |        2,611            63
Increase in deferred financing costs.........................................             (61)     |           --           (56)
                                                                                     --------      |     --------       -------
Net cash provided by (used in) financing activities..........................           2,148      |        3,613        (2,147)
                                                                                     --------      |     --------       --------
REORGANIZATION ACTIVITIES:                                                                         |
Cash paid to settle bankruptcy claims........................................              --      |      (15,684)           --
                                                                                     --------      |     --------       -------
Net increase (decrease) in cash..............................................           5,079      |      (15,239)       (1,470)
Cash and cash equivalents at beginning of period.............................           1,624      |       16,863         5,295
                                                                                     --------      |     --------       -------
Cash and cash equivalents at end of period...................................        $  6,703      |     $  1,624       $ 3,825
                                                                                     ========      |     ========       =======
                                                                                                   |
Cash paid for:                                                                                     |
   Interest..................................................................        $  3,731      |         $410        $2,764
   Income taxes..............................................................              72      |           --            --
</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 September 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 eight months ended  September  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 $446,000 and $2.1 million for the three
months and eight months ended September 30, 1999, and $1.4 million, $2.0 million
and $3.2 million for the one month ended January 31, 1999,  and the three months
and nine months  ended  September  30, 1998,  respectively.  The  allowance  for


                                       6
<PAGE>

doubtful accounts totaled $3.7 million at September 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 18 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 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, subject to amounts  in
              dispute.  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 final settlement of the remaining
              general  unsecured  claims is  subject to the outcome of claims in
              litigation, including claims of  Healthprime, Inc. et al. See Part
              II, Item 1, "Legal  Proceedings."  The aggregate amount of general
              unsecured claims was approximately $137.5 million.


                                       8
<PAGE>

         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 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 Item 2, "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
                                                        ========      =========          ========         ========
</TABLE>

(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.


                                       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.


                                       11
<PAGE>

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
receive one share of RainTree  common stock upon the earlier of February 1, 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
$80,000  in the 1999  third  quarter  and  $446,000  in the eight  months  ended
September 30, 1999.

         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   Eight Months |  One Month    Three Months   Nine Months
                                                            Ended         Ended     |    Ended        Ended          Ended
                                                        September 30,  September 30,| January 31,   September 30, September 30,
                                                             1999          1999     |     1999         1998           1998
                                                        -------------  ------------ | ------------  ------------- ------------
<S>                                                        <C>            <C>            <C>           <C>          <C>
Revenues from nonrelated entities:                                                  |
  Long-term care.....................................      $27,104        $71,408   |    $ 10,142      $33,960      $110,942
  Rehabilitation therapy.............................           69          1,844   |         715        3,042         9,870
  Pharmacy...........................................        2,361          5,899   |         729        2,329         7,342
  Laboratory.........................................        1,703          4,560   |         482        1,471         4,428
  Corporate..........................................          222            631   |          50           29            84
                                                           -------       --------   |    --------      -------       -------
    Total............................................      $31,459       $ 84,342   |    $ 12,118      $40,831      $132,666
                                                           =======       ========   |    ========      =======      ========
                                                                                    |
Total revenues:                                                                     |
  Long-term care.....................................      $27,104       $ 71,408   |    $ 10,142      $33,960      $110,942
  Rehabilitation therapy.............................        1,106          4,532   |       1,152        5,913        20,812
  Pharmacy...........................................        2,864          7,265   |       1,039        3,548        11,455
  Laboratory.........................................        1,783          4,776   |         510        1,471         4,428
  Corporate..........................................        1,856          5,083   |         676        2,194         7,280
  Eliminations.......................................       (3,254)        (8,722)  |        (626)      (2,165)       (7,196)
                                                           -------       --------   |    --------      -------      --------
    Total...........................................       $31,459       $ 84,342   |    $ 12,893      $44,921      $147,721
                                                           =======       ========   |    ========      =======      ========
                                                                                    |
Operating income (loss):                                                            |
  Long-term care....................................       $  (872)      $   (651)  |    $   (251)    $ (1,862)    $  (3,273)
  Rehabilitation therapy............................           107           (709)  |      (1,476)        (358)         (513)
  Pharmacy..........................................            63            104   |         140          611         2,158
  Laboratory........................................           (64)          (155)  |        (120)        (821)         (842)
  Unallocated corporate expenses....................        (2,841)        (9,192)  |        (741)        (801)       (9,736)
                                                           -------       --------   |    --------       ------       -------
    Consolidated operating loss.....................        (3,607)       (10,603)  |      (2,448)      (3,231)      (12,206)
Reorganization expenses.............................            --             --   |      54,597          907         1,775
                                                           -------       --------   |    --------       ------       -------
Consolidated loss before income taxes and                                           |
  extraordinary credit..............................       $(3,607)      $(10,603)  |    $(57,045)    $ (4,138)     $(13,981)
                                                           =======       ========   |    ========     ========      ========

                                                                        September   |    December
                                                                          1999      |      1998
                                                                        ---------   |    --------
Total assets:                                                                       |
   Long-term care...................................                     $ 62,092   |    $ 79,624
   Rehabilitation therapy...........................                           98   |      13,266
   Pharmacy.........................................                        5,418   |       5,751
   Laboratory.......................................                        2,512   |       2,372
   Corporate........................................                       56,702   |      73,732
   Eliminations.....................................                       (2,838)  |      (4,205)
                                                                         --------   |    --------
      Total.........................................                     $123,984   |    $170,540
                                                                         ========   |    ========
</TABLE>

10.  ISSUES IMPACTING LIQUIDITY AND FINANCIAL POSITION

         RainTree did not make the $1.3 million semiannual  interest payment due
July 1, 1999 on the Senior Secured Notes. The Company entered into a forbearance
agreement with the Indenture Trustee (the "Forbearance")  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  expires on January 15, 2000. 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. The holders of the Senior
Secured Notes could then take  possession of the stock and personal  property of
certain  RainTree  subsidiaries  that  secures  the  Senior  Secured  Notes.  In
addition,  a default  under the Senior  Secured  Notes  Indenture  constitutes a


                                       13
<PAGE>

default under the Omega Master Lease, the Indiana  Returned  Facilities Note and
RainTree's  revolving credit agreement with Heller  Financial,  the successor in
interest to 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
80.0% for the month of October 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.

         Management  believes  that the  deferment of the interest  payment will
provide RainTree with additional time to increase occupancy and complete its new
business  plan.  The Company's  current cash shortfall has forced it to consider
various strategic alternatives, including a possible recapitalization, 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.  In connection  with the  Forbearance,  both Omega and Health Partners
have agreed not to exercise their respective  rights and remedies.  In the event
that the  Forbearance is not extended,  or other events of default occur,  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 interest payments on the Whitehead Notes that
were due July 1 and October 1, 1999 in the aggregate  amount of to $68,000 (Note
3). The Company did not make the  payments  because  these  unsecured  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  Facilities  Note,
Whitehead Notes and borrowings  from Health  Partners as current  liabilities on
the Company's  consolidated  balance sheet at September 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.

         The Company is in the process of analyzing  its  long-lived  assets for
impairment in accordance  with statement of Financial  Accounting  Standards No.
121,  "Accounting  for the  Impairment  of  Long-Lived  Assets  and Assets to be
Disposed Of." Adjustments  arising from this analysis,  if any, will be recorded
in the fourth quarter of 1999.


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",   "projected"   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  underlying these statements are reasonable,  such


                                       14
<PAGE>

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  Company  entered  into  the
Forbearance 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  expires on January 15, 2000. 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.  The holders of the Senior  Secured
Notes could then take  possession of the stock and personal  property of certain
RainTree  subsidiaries  that secures the Senior  Secured Notes.  In addition,  a
default under the Senior Secured Notes Indenture constitutes a default under the
Omega  Master  Lease,  the  Indiana  Returned  Facilities  Note  and  RainTree's
revolving credit agreements with Heller Financial,  the successor in interest to
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
80.0% for the month of October 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.

         Management  believes  that the  deferment of the interest  payment will
provide RainTree with additional time to increase occupancy and complete its new
business  plan.  The Company's  current cash shortfall has forced it to consider
various strategic alternatives, including a possible recapitalization, 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.  In connection  with the  Forbearance,  both Omega and Health Partners
have agreed not to exercise their respective  rights and remedies.  In the event
that the  Forbearance is not extended,  or other events of default occur,  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 interest payments on the Whitehead Notes that
were due July 1 and October 1, 1999 in the aggregate amount of $68,000 (Note 3).
The  Company  did not  make the  payments  because  these  unsecured  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  Facilities  Note,
Whitehead Notes and borrowings  from Health  Partners as current  liabilities on
the Company's  consolidated  balance sheet at September 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.

         The Company is in the process of analyzing  its  long-lived  assets for
impairment in accordance  with Statement of Financial  Accounting  Standards No.


                                       16
<PAGE>

121,  "Accounting  for the  Impairment  of  Long-Lived  Assets  and Assets to be
Disposed Of." Adjustments  arising from this analysis,  if any, will be recorded
in the 1999 fourth quarter.

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 nine months ended  September 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          Nine Months Ended
                                                                        September 30,               September 30,
                                                                   ----------------------      -----------------------
                                                                     1999          1998         1999 (1)        1998
                                                                   --------      --------      ---------     ---------
<S>                                                                <C>            <C>          <C>           <C>
Total revenues..................................................   $31,459        $44,921      $ 97,235      $ 147,721
Expenses:
  Wages and related.............................................    17,496         23,642        54,798         76,089
  Other operating...............................................    10,584         17,779        34,372         54,955
  Rent..........................................................     3,061          3,606         9,315         11,272
  Interest (excludes contractual interest not accrued on
    prepetition debt of $1,507 in the eight months ended
    September 30, 1999 and $4,965 and $6,565 in the three
    months and nine months ended September 30,1998,
    respectively................................................     2,158            826         6,411         10,742
  Depreciation and amortization ................................     1,767          2,299         5,390          6,869
                                                                   -------        -------      --------      ---------
       Total expenses...........................................    35,066         48,152       110,286        159,927
                                                                   -------        -------      --------      ---------
Loss from operations............................................    (3,607)        (3,231)      (13,051)       (12,206)
Reorganization expenses ........................................        --            907        54,597          1,775
                                                                   -------        -------      --------      ---------
Loss before income taxes and extraordinary credit...............    (3,607)        (4,138)      (67,648)       (13,981)
Income tax benefit..............................................        --             --            --             --
                                                                   -------        -------      --------      ---------
Loss before extraordinary credit................................    (3,607)        (4,138)      (67,648)       (13,981)
Extraordinary credit - gain on debt discharge...................        --             --       113,242             --
                                                                   -------        -------      --------      ---------
Net income (loss)...............................................   $(3,607)       $(4,138)     $ 45,594      $ (13,981)
                                                                   =======        ========     ========      =========
</TABLE>

(1)  This column represents the combination of historical  results for the eight
     months ended September 30, 1999 for Reorganized  RainTree and the one month
     ended January 31, 1999 for the Predecessor Company.


     The following table summarizes selected operating statistics.

                                                             At September 30,
                                                          ----------------------
                                                          1999             1998
                                                          ----             ----
Leased and Owned Facilities:
    Number of facilities..............................      35               43
    Number of licensed beds:
       Long-term care.................................   3,405            3,957
       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               37

Laboratory Services:
    Number of laboratories............................       3                3
    Nonaffiliated entities served.....................     355              252


                                       18
<PAGE>

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

<TABLE>
<CAPTION>
                                                      Three Months Ended   Nine Months Ended
                                                         September 30,       September 30,
                                                      ------------------   -----------------
                                                       1999        1998     1999       1998
                                                       ----        ----     ----       ----
<S>                                                    <C>         <C>       <C>       <C>
Percentage of total revenues:
     Long term care ..............................     86.9%       83.2%     85.2%     83.8%
     Therapy services ............................      0.2         7.5       2.7       7.4
     Pharmacy services ...........................      7.5         5.7       6.9       5.5
     Laboratory services .........................      5.4         3.6       5.2       3.3
                                                      -----       -----     -----     -----
         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   Nine Months Ended
                                                         September 30,       September 30,
                                                      ------------------   -----------------
                                                       1999        1998     1999       1998
                                                       ----        ----     ----       ----
<S>                                                    <C>         <C>       <C>       <C>
Medicare .........................................     21.8%       27.1%     22.1%     29.7%
Private and other.................................     17.2        16.3      17.4      16.3
                                                      -----       -----     -----     -----
Quality mix.......................................     39.0        43.4      39.5      46.0
Medicaid .........................................     61.0        56.6      60.5      54.0
                                                      -----       -----     -----     -----

     Total........................................    100.0%      100.0%    100.0%    100.0%
                                                      =====       =====     =====     =====

AVERAGE OCCUPANCY
Nursing facilities...............................      79.0%       80.4%     78.4%     81.4%
Independent and assisted living facilities.......      48.9        59.2      50.8      59.2
</TABLE>


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

         In the 1999 third quarter, RainTree recorded a net loss of $3.6 million
compared to a net loss of $4.1 million in the prior year  quarter.  Net loss for
the 1998 third quarter includes  reorganization  expenses amounting to $907,000.
Loss from operations amounted to $3.6 million in the 1999 third quarter compared
to $3.2 million in the same period in 1998.

         Total revenues  decreased $13.5 million,  or 30.0%, to $31.5 million in
the 1999 third quarter from $44.9 million in the  comparable  1998 quarter.  Net
patient service revenues  decreased from $44.5 million in the 1998 third quarter
to $31.2 million in the current  period.  Patient days decreased from 306,760 in
the 1998 period to 257,187 in the current period.  Net patient service  revenues
recorded by the  long-term  care  facilities  decreased  by  approximately  $6.9
million, of which $4.1 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


                                       19
<PAGE>

the prior year  quarter.  The  Company  believes  that the  decrease  in average
occupancy in 1999 is due primarily to (i) the negative perception of RainTree as
a result of the bankruptcy; and (ii) competition from assisted living facilities
in some local markets,  which has negatively  affected average  occupancy in the
current quarter. On a same store basis,  long-term care average occupancy in the
1999 third quarter was 79.0%  compared to 81.9% in the 1998 period.  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 21% lower in fiscal 1999 than in 1998.

         Total  ancillary  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) some of
the ancillary  companies'  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
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 $6.1 million, or 26.0%, from $23.6
million in the 1998 third quarter to $17.5 million in the current  quarter.  The
decrease is due  primarily  to: (i)  facility  dispositions,  which  account for
approximately  $2.2  million of the  decrease;  and (ii) a decrease in ancillary
company  expenses of  approximately  $3.9  million.  The  decrease in  ancillary
company expense is due primarily to the sale of therapy contracts and a decrease
in the utilization of services  provided under PPS. Sunbelt has also changed its
compensation  structure in order to control  costs.  In the 1999 third  quarter,
RainTree  recorded   compensation   expense  amounting  to  $80,000  related  to
Restricted  Stock Units issued.  See Note 7 of Notes to  Consolidated  Financial
Statements.

         Other operating expenses  decreased $7.2 million,  or 40.5%, from $17.8
million in the 1998 third  quarter to $10.6  million in the 1999 third  quarter.
Approximately  $1.8  million  of the  decrease  is due  to  the  disposition  of
facilities  and $1.6 million is  attributable  to the ancillary  companies.  The
provision  for doubtful  accounts  decreased by $1.6 million from the prior year
period  due  to a  decrease  in the  age of  nursing  facility  receivables.  In
addition, the provision in the prior year period included approximately $886,000
attributable to notes receivable from former  affiliates of acquired  companies.
See Part II, Item 1,"Legal Proceedings." 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.

         Rent  expense  decreased from $3.6 million in the 1998 third quarter to
$3.1  million in the 1999  period.  The  decrease is due to the  disposition  of
facilities.

         Interest  expense  amounted to $2.2  million in the 1999 third  quarter
compared to $826,000  in the 1998 third  quarter.  The prior year period did not
include  contractual  interest not accrued on prepetition  debt of approximately
$5.0 million. See Note 5 of Notes to Consolidated Financial Statements.

         Depreciation  and amortization  expense  decreased from $2.3 million in
the 1998 third quarter to $1.8 million in the 1999 third  quarter.  The decrease
is due to the net  reduction in  intangible  assets  resulting  from fresh start
reporting.

         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


                                       20
<PAGE>

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.

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998

         For the nine-month  period ended September 30, 1999,  RainTree recorded
net income of $45.6 million compared to a net loss of $14.0 million in the prior
year period.  The 1999 results  include a $113.2 million gain on debt discharged
in the  bankruptcy  and  reorganization  expenses  amounting  to $54.6  million.
RainTree recorded losses from operations  amounting to $13.1 million in the 1999
period and $12.2 million in the 1998 period.

         Total revenues  decreased $50.5 million,  or 34.2%, to $97.2 million in
the 1999 period from $147.7 million in the comparable  1998 period.  Net patient
service  revenues  decreased  from  $146.4  million in the 1998  period to $96.2
million in the current  period.  Patient days decreased from 990,633 in the 1998
period to 767,332 in the current period.  Net patient service revenues  recorded
by the long-term care facilities  decreased by approximately  $29.3 million,  of
which $17.5  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 (i) the negative  perception of RainTree as a result of the
bankruptcy;  and (ii) competition from assisted living  facilities in some local
markets, which has negatively affected average occupancy in the current quarter.
On a same store basis,  long-term care average  occupancy through the 1999 third
quarter was 78.4% compared to 84.1% in the 1998 period. 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
21% lower in fiscal 1999 than in 1998.

         Total  ancillary  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) some of
the ancillary  companies'  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
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  $21.3 million,  or 28.0%,  from
$76.1  million in the 1998 period to $54.8  million in the current  period.  The
decrease is due  primarily  to: (i)  facility  dispositions,  which  account for
approximately  $9.5  million of the  decrease;  and (ii) a decrease in ancillary
company  expenses  of  approximately  $11.5  million.  Most of the  decrease  in
ancillary  company expense is due primarily to the sale of therapy contracts and
a decrease in the utilization of services  provided under PPS.  Sunbelt has also
changed  its  compensation  structure  in order to  control  costs.  In the 1999
period,  RainTree recorded compensation expense amounting to $473,000 related to
Restricted  Stock Units issued.  See Note 7 of Notes to  Consolidated  Financial
Statements.

         Other operating expenses decreased $20.6 million,  or 37.5%, from $55.0
million in the 1998 period to $34.4 million in the current period. Approximately
$7.5  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 $247,000 from the prior year
period.


                                       21
<PAGE>

         Rent expense  decreased  from $11.3 million in the 1998 period to  $9.3
million in the 1999 period.  The decrease is due primarily to the disposition of
facilities.

         Interest  expense  amounted to $6.4 million in the 1999 period compared
to $10.7  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 $6.9 million in
the 1998 period to $5.4  million in the current  period.  The decrease is due to
the net reduction in intangible assets resulting from fresh start reporting.

         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

         RainTree  had a cash  balance  of $6.7  million  and a working  capital
deficit of $39.5 million at September  30, 1999. Of this deficit,  $34.6 million
is due to the current classification of long-term debt in default. See "--Recent
Developments."

         RainTree's operating activities provided net cash amounting to $871,000
in the eight months ended  September  30,  1999.  The net cash  generated is due
primarily  to an  increase  in  accounts  payable  and  collection  of  accounts
receivable.

         Net accounts  receivable  decreased by approximately $10.7 million from
December 31, 1998 to September 30, 1999, primarily in connection with collection
of third  party  receivables,  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 23.5%. The
percentage  decrease  is  because  the  Sunbelt  receivables  sold and  disposed
facilities'  receivables  that were  written  off had a  proportionately  higher
percentage  of reserves for doubtful  accounts.  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 September 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.

         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


                                       22
<PAGE>

Facility was 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 September  30, 1999,
borrowings  outstanding under the First Line totaled approximately $3.1 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 a second $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  September 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 September 30, 1999.

         Net cash  provided by  investing  activities  in the eight months ended
September 30, 1999 amounted to $2.1 million.  The Company  received $1.2 million
in cash  from the sale of  Sunbelt  assets  and  lease  and  insurance  deposits
decreased by approximately $2.7 million.  Routine capital expenditures  amounted
to approximately $1.9 million.

         Net cash  provided  by financing  activities  in the eight months ended
September 30, 1999 amounted to approximately $2.1 million, primarily as a result
of a net increase in borrowings.

         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.  As of September 30, 1999, the Company
was not in compliance  with the  financial  covenants of the Omega Master Lease,
which require that RainTree  maintain a minimum fixed charge  coverage  ratio of
1.4 for the four quarters ended September 30, 1999.  RainTree has not obtained a
waiver of this covenant  violation from Omega.  Although Omega has not indicated
an intention  to declare a default,  it could  exercise  its remedies  under the
Master Lease, including a termination of such lease.

         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.

        At September 30, 1999, RainTree had approximately $77.7 million of total
debt and lease  financing  obligations.  The Company also has aggregate  minimum
rent obligations of approximately  $130.0 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 recapitalization, merger or other business combination. See
" - Recent Developments."

IMPACT OF THE YEAR 2000 ISSUE

         Based on an assessment of some of RainTree's  information  systems, the
Company determined that it had  time-sensitive  software that would not properly
recognize  the  year  2000.  Accordingly,   the  Company  modified  or  replaced


                                       23
<PAGE>

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 the modifications to existing software and conversions to new
software,  the Company will be year 2000 ready and that 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 utilized 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  encompassed
consideration of potential  impacts on the Company's  business  operations.  The
Company is continuing to review internal  business  operations and relationships
with external business partners to assess the current level of compliance. As of
September  30,  1999,  the  Company  had  incurred   approximately   $74,000  of
incremental costs to upgrade existing software to make it year 2000 compliant.

         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,
payroll  processing  by the  Company's  outside  service  bureau and  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, all of the Company's  application  programs have
been modified or upgraded  except for payroll,  which is expected to be upgraded
by November 30, 1999.  The Company  believes that it is  substantially  complete
with its overall year 2000  remediation  with minimal 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 RainTree's
business.

         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  RainTree's
Quarterly  Report on Form 10-Q for the quarter  ended March 31, 1999 (the "First
Quarter  Form  10-Q").  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. Currently, the case is about to enter the discovery phase.

         Reference is made to an action styled HEALTHPRIME,  INC., HP/HEALTHCARE
ACQUIRORS,   INC.,  MARKLEYSBURG  HEALTHCARE  INVESTORS,  L.P.,  MARSHALL  MANOR


                                       24
<PAGE>

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 entered an order
abstaining  from  hearing  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.

         Reference is made to an action styled RAINTREE  HEALTHCARE  CORPORATION
AND  BRITWILL  INVESTMENTS  - II, INC. V. HASMARK  CORPORATION  AND HASMARK EAST
LTD.,  filed in the Bankruptcy Court (Adversary No. 99-396) on May 27, 1999. The
company is seeking to recover  sublease  payments for  facilities  in Texarkana,
Texas totaling $1.5 million plus interest and attorney's fees.

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  Company  entered  into  the
Forbearance 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  expires on January 15, 2000. 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.  The holders of the Senior  Secured
Notes could then take  possession of the stock and personal  property of certain
RainTree  subsidiaries  that secures the Senior  Secured Notes.  In addition,  a
default under the Senior Secured Notes Indenture constitutes a default under the
Omega  Master  Lease,  the  Indiana  Returned  Facilities  Note  and  RainTree's
revolving credit agreement with Heller  Financial,  the successor in interest to
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.  In connection  with the  Forbearance,  both Omega and Health Partners
have agreed not to exercise their respective  rights and remedies.  In the event
that the  Forbearance is not extended,  or other events of default occur,  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 interest payments on the Whitehead Notes that
were due July 1 and October 1, 1999 in the aggregate amount of $68,000 (Note 3).
The  Company  did not  make the  payments  because  these  unsecured  notes  are
subordinate to the Senior Secured Notes.


                                       25
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)  Exhibits:


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


        (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:   November 15, 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)

                                       26