-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SubiyJXwDBHO5wqVoxZsnItaacl8IU/4/T6bB6SaEZwsAxHGKavi9Vi10IHqNmjO CbyFsGYloE3ylzOQZEvvdw== 0000930661-96-001671.txt : 19961121 0000930661-96-001671.hdr.sgml : 19961121 ACCESSION NUMBER: 0000930661-96-001671 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961119 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREENBRIAR CORP CENTRAL INDEX KEY: 0000105744 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 752399477 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-08187 FILM NUMBER: 96668954 BUSINESS ADDRESS: STREET 1: 4265 KELLWAY CIRCLE CITY: ADDISON STATE: TX ZIP: 75244 BUSINESS PHONE: 2144078400 MAIL ADDRESS: STREET 1: 4265 KELLWAY CIRCLE CITY: ADDISON STATE: TX ZIP: 75244 FORMER COMPANY: FORMER CONFORMED NAME: MEDICAL RESOURCE COMPANIES OF AMERICA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WESPAC INVESTORS TRUST DATE OF NAME CHANGE: 19900605 10QSB 1 FORM 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended September 30, 1996 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: 0-8187 GREENBRIAR CORPORATION (Name of Small Business Issuer in its Charter) NEVADA 75-2399477 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 4265 KELLWAY CIRCLE, ADDISON, TEXAS, 75244 (Address of principal executive offices) (972) 407-8400 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past twelve 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___ --- At November 14, 1996, the issuer had outstanding 5,171,000 shares of par value $.01 common stock. 1 GREENBRIAR CORPORATION INDEX
Page No. -------- PART I - FINANCIAL INFORMATION 3 Item 1. Consolidated Financial Statements Consolidated Balance Sheets- 4 September 30, 1996 and December 31, 1995 Consolidated Statements of Operations- 6 Three and Nine Month Periods Ended September 30, 1996 and 1995 Consolidated Statements of Cash Flows- 8 Nine Month Periods Ended September 30, 1996 and 1995 Notes to Consolidated Financial Statements 10 Item 2. Management's Discussion and Analysis of 14 Financial Condition and Results of Operations PART II - OTHER INFORMATION 22 Item 1. Legal proceedings 23 Item 4. Submission of matters to a vote of Security Holders 25 Item 6. Exhibits and Reports on Form 8-K 25 SIGNATURES 26
2 PART I - FINANCIAL INFORMATION 3 GREENBRIAR CORPORATION CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share data)
September 30, December 31, 1996 1995 --------------- ----------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,225 $ 7,199 Accounts receivable 746 23 Deferred income tax benefit - 2,150 Real estate operations held for sale 5,405 - Other current assets 1,151 1,536 ------- ------- TOTAL CURRENT ASSETS 11,527 10,908 REAL ESTATE - 3,190 NET ASSETS OF MOBILITY GROUP - 3,371 INVESTMENT IN SECURITIES, AT COST 4,266 1,853 NOTES RECEIVABLE 8,959 7,368 PROPERTY AND EQUIPMENT, AT COST Land 7,832 322 Buildings and improvements 48,628 767 Equipment and furnishings 2,078 203 Construction in progress 6,790 1,576 ------- ------- 65,328 2,868 Less accumulated depreciation 1,106 252 ------- ------- 64,222 2,616 RESTRICTED CASH AND INVESTMENTS 3,521 105 OTHER ASSETS 2,404 361 ------- ------- $94,899 $29,772 ======= =======
4 GREENBRIAR CORPORATION CONSOLIDATED BALANCE SHEETS - CONTINUED (Amounts in thousands, except per share data)
September 30, December 31, 1996 1995 ------------- ------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term obligations $ 977 $ 8 Due to affiliates 589 - Accounts payable 2,335 412 Accrued expenses 1,455 343 Mortgage notes collateralized by real estate held for sale 903 - Other current liabilities 1,089 130 ------- ------- TOTAL CURRENT LIABILITIES 7,348 893 LONG-TERM OBLIGATIONS 43,034 901 DEFERRED INCOME TAXES 1,037 - DEFERRED GAIN 3,083 3,083 STOCKHOLDERS' EQUITY Preferred stock, $.10 par value; liquidation value of $4,685 in 1996 and $3,330 in 1995; authorized, 10,000 shares; issued and outstanding (in three series), 688 shares in 1996 and 34 shares in 1995 70 3 Common stock, $.01 par value; authorized, 100,000 shares; issued and outstanding, 5,171 shares in 1996 and 3,452 shares in 1995 51 35 Additional paid-in capital 50,025 33,957 Accumulated deficit (7,234) (6,584) ------- ------- 42,912 27,411 Less stock purchase notes receivable (2,515) (2,516) ------- ------- 40,397 24,895 ------- ------- $94,899 $29,772 ======= =======
5 GREENBRIAR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data)
FOR THE THREE FOR THE NINE MONTH PERIOD ENDED MONTH PERIOD ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 ----------- -------- ---------- -------- (Unaudited) (Unaudited) REVENUE Assisted living facility income $ 4,493 $ - $ 8,812 $ 555 Other 39 - 86 - ------- ------- ------- ------- 4,532 - 8,898 555 OPERATING EXPENSES Assisted living facility operating expenses 2,842 - 5,548 276 Lease expense 432 - 886 - Facility depreciation and amortization 421 - 826 42 Corporate general and administrative 881 647 2,400 1,947 ------- ------- ------- ------- 4,576 647 9,660 2,265 ------- ------- ------- ------- OPERATING LOSS (44) (647) (762) (1,710) OTHER INCOME (EXPENSE) Interest and dividend income 206 373 674 941 Interest expense (816) (1,614) (98) Gain on sales of assets - 1,146 32 6,950 Settlement of lawsuit (120) - (120) - Other (310) 5 143 14 Minority interest in earnings of consolidated partnership (39) - (76) - ------- ------- ------- ------- (1,079) 1,524 (961) 7,807 ------- ------- ------- ------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (1,123) 877 (1,723) 6,097 INCOME TAX EXPENSE (BENEFIT) (427) 294 (656) 2,069 ------- ------- ------- ------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS (696) 583 (1,067) 4,028 DISCONTINUED OPERATIONS Earnings from operations, net of income taxes 54 150 170 162 Gain on disposal, net of income taxes - - 580 - ------- ------- ------- ------- NET EARNINGS (LOSS) (642) 733 (317) 4,190
6 GREENBRIAR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS - Continued (Amounts in thousands, except per share data)
FOR THE THREE FOR THE NINE MONTH PERIOD ENDED MONTH PERIOD ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 ---- ---- ---- ---- (Unaudited) (Unaudited) Preferred stock dividend requirement (99) (48) (247) (176) ------- ------- ------- ------- Earnings (loss) allocable to common shareholders $ (741) $ 685 $ (564) $ 4,014 ======= ======= ======= ======= Earnings (loss) per share Continuing operations $ (0.21) $ 0.15 $ (0.37) $ 1.08 Net earnings $ (0.20) $ 0.20 $ (0.16) $ 1.13 Weighted average number of common and equivalent shares outstanding 3,754 3,490 3,559 3,551
7 GREENBRIAR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
For The Nine Month Period Ended September 30, September 30, 1996 1995 -------------- -------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) $ (317) $ 4,190 Adjustments to reconcile net earnings to net cash used in operating activities Discontinued operations (750) (162) Depreciation and amortization 854 76 Gain on sales of assets (32) (6,950) Changes in operating assets and liabilities Accounts receivable (166) 795 Due to/from affiliates (135) 3 Deferred income taxes (197) 1,781 Other current and noncurrent assets (2,358) 1,197 Accounts payable and other liabilities 751 (2,246) ------- ------- Total adjustments (2,033) (5,506) ------- ------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF: Continuing operations (2,350) (1,316) Discontinued operations (10) 336 ------- ------- NET CASH USED IN OPERATING ACTIVITIES (2,360) (980) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of assets 256 19,361 Purchase of property and equipment (8,517) (43) Net cash effect of purchase of businesses 739 - Additions to loans receivable (347) (5,478) Repayment of loans receivable 175 1,500 Investing activities of discontinued operations - 483 ------- ------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (7,694) 15,823 ------- -------
8 GREENBRIAR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued (Amounts in thousands)
For The Nine Month Period Ended September 30, September 30, 1996 1995 --------------- -------------- (Unaudited) (Unaudited) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings $ 7,692 $ - Payments on debt (243) (14,140) Dividends on preferred stock (247) (92) Retirement of preferred stock - (1,085) Purchase of common stock (122) (1,301) Financing activities of discontinued operations - (17) -------- ------------- NET CASH PROVIDED BY (USED IN)FINANCING ACTIVITIES 7,080 (16,635) -------- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (2,974) (1,792) Cash and cash equivalents at beginning of period 7,199 8,202 -------- ------------- Cash and cash equivalents at end of period $ 4,225 $ 6,410 ======== ============= Supplemental information on noncash investing and financing transactions is as follows: Stock dividend paid on preferred shares $ 116 $ - Sale of subsidiary Securities received Note receivable $ 2,000 $ - Preferred stock - Series A - Innovative Health Services, Inc. $ 2,300 $ - Net assets sold $ 3,371 $ - Purchase of businesses Fair value of assets acquired $ 61,332 $ - Liabilities assumed (40,499) - Deferred income tax liability (4,691) - Pre-acquisition loan and other costs (680) - Preferred stock issued (16,201) - -------- ------------- Cash received $ (739) $ - ======== =============
9 GREENBRIAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited consolidated financial statements include the accounts of Greenbriar Corporation and its majority-owned subsidiaries (collectively, the Company). All significant intercompany transactions and accounts have been eliminated. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310 of Regulation S-B, and accordingly, do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements have not been examined by independent certified public accountants, but in the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of consolidated results of operations, consolidated financial position and consolidated cash flows at the dates and for the periods indicated, have been included. Operating results for the nine month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10- KSB for the fiscal year ended December 31, 1995 as amended by Form 10-KSB/A, Amendments 1-3. NOTE B - ACQUISITION OF WEDGWOOD RETIREMENT INNS, INC. - ------------------------------------------------------ In March 1996, the Company acquired substantially all of the assets and liabilities of a number of companies under common control and managed by Wedgwood Retirement Inns, Inc. ("Wedgwood"), headquartered in Vancouver, Washington. The acquisition has been accounted for as a purchase transaction and Wedgwood's operations are reflected in the consolidated statement of earnings beginning April 1, 1996. Wedgwood was one of the first developers and management companies in the retirement and assisted living industry. The business of Wedgwood consists of the operation of 15 assisted or independent living facilities. To structure the Wedgwood acquisition as a tax-free exchange, the Company also acquired a shopping center in North Carolina from James R. Gilley and certain of his affiliates and family members(the Gilley Group). Due to the fact that the Gilley Group is a majority shareholder of Greenbriar and owner of the shopping center, the property was recorded for accounting purposes at the Gilley Group's historical cost basis of approximately $2,300,000. Consideration given was 675,000 shares of Series D preferred stock. Wedgwood's assets were valued at approximately $59,000,000 ($55,000,000 of property and equipment) and liabilities assumed were approximately $45,000,000. In exchange, Greenbriar issued 1,949,950 shares of Series E preferred stock recorded for accounting purposes at approximately $14,000,000, to the Wedgwood shareholders. Both classes of stock are unregistered, have no trading market unless converted to common stock, and are entitled to one vote per share on all matters to come before a meeting of stockholders. The Series D preferred stock will bear a cumulative quarterly dividend of 9.5% per year. 10 GREENBRIAR CORPORATION ---------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED NOTE B - ACQUISITION - CONTINUED - -------------------------------- On September 16, 1996 a Special Meeting of Stockholders of Greenbriar was held and the stockholders voted to authorize the conversion of the Company's Series D and E Preferred Stock into common stock. Upon conversion the holders of Series D and E Preferred Stock will receive unregistered common stock in Greenbriar of 337,500 and 1,624,958 shares respectively. Immediately following the shareholder vote the Series E Preferred Stock was converted into common stock. The following table presents pro forma unaudited consolidated results of operations for the three month period ended September 30, 1995 and nine month periods ended September 30, 1996 and 1995, assuming that the acquisition had taken place on January 1, 1995. The pro forma results are not necessarily indicative of the results of operations that would have occurred had the acquisition been made on January 1, 1995, or of future results of operations of the combined companies.
(Amounts in thousands except per share data) FOR THE THREE FOR THE NINE MONTH PERIOD ENDED MONTH PERIOD ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 (Actual) (Pro forma) (Pro forma) (Pro forma) -------- ----------- ----------- ---------- (Unaudited) (Unaudited) Revenue $ 4,532 $ 3,871 $ 13,160 $ 11,460 Earnings (loss)from continuing operations $ (696) $ 420 $ (2,039) $ 3,472 Net earnings (loss) $ (642) $ 570 $ (589) $ 3,634 Earnings (loss) allocable to common shareholders $ (741) $ 442 $ (916) $ 3,218 Earnings (loss) per share Continuing operations $ (0.21) $ 0.06 $ (0.46) $ 0.59 Net earnings $ (0.20) $ 0.09 $ (0.26) $ 0.62
NOTE C - DISPOSITION OF REAL ESTATE OPERATIONS - ---------------------------------------------- The Company has entered into an agreement to sell three of its four remaining real estate assets. The fourth property, a shopping center, is being marketed and management expects to complete the sale within a year. Management expects that the proceeds from the sales will be at least equal to the $5,405,000 book value of the real estate assets. 11 GREENBRIAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Accordingly, the Company's real estate operations have been reflected as discontinued in the financial statements at September 30, 1996. Financial statements for prior periods have been restated for comparability. Revenues from real estate operations for the three months ended September 30, 1996 and 1995 were $227,000 and $149,000, respectively, and for the nine months ended September 30, 1996 and 1995 were $617,000 and $521,000, respectively. NOTE D - LONG-TERM OBLIGATIONS - ------------------------------ Long-term obligations consist of the following(amounts in thousands):
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ Notes payable to banks and financial institutions $20,736 $ 909 Notes payable to individuals and companies 4,598 - Note payable to the Redevelopment Agency of the City of Corona, CA 7,740 - Financing obligations 10,815 - Other 122 - ------- ------------ 44,011 Less current maturities 977 8 ------- ------------ Long-term obligations $43,034 $ 901 ======= ============
Notes payable to banks and financial institutions mature through the year 2015 and include fixed and variable interest rates ranging from 7.5% to 11.75% at September 30, 1996. The notes are collateralized by real property, personal property, fixtures, equipment and the assignment of rents. Notes payable to individuals and companies mature through the year 2015 and include variable and fixed interest rates ranging from 7% to 10.64% at September 30, 1996. The notes are collateralized by real property, personal property, fixtures, equipment and the assignment of rents. The note payable to the Redevelopment Agency of the City of Corona, California is payable into a sinking fund semi-annually in increasing amounts from $65,000 to $420,000 through May 1, 2015. The variable interest rate was 4.75% at September 30, 1996. The note is collateralized by personal property, land, fixtures and rents. During 1994, Wedgwood entered into sale-leaseback transactions for two facilities. 12 GREENBRIAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED At the end of the tenth year of the fifteen year leases, Wedgwood has options to repurchase the facilities for the greater of the sales prices or their fair market values. The sale leaseback transactions have been accounted for as financings. The proceeds from the sales have been recorded as financing obligations, and the lease payments are classified as interest expense. NOTE E - PREFERRED STOCK - ------------------------ The following summarizes the various classes of preferred stock (amounts in thousands except per share data):
JUNE 30, DECEMBER 31, 1996 1995 -------- ------------ Series B cumulative convertible preferred stock, $.10 par value; liquidation value of $310 in 1996 and $1,330 in 1995; authorized, 100 shares; issued and outstanding, 3 and 14 shares in 1996 and 1995, respectively $ 1 $ 1 Series C cumulative convertible preferred stock, $.10 par value; liquidation value of $1,000 in 1996 and $2,000 in 1995; authorized, 20 shares; issued and outstanding, 10 and 20 shares in 1996 and 1995, respectively. 1 2 Series D cumulative preferred stock, $.10 par value; liquidation value of $3,375 in 1996; authorized, issued and outstanding 675 shares in 1996 68 - ----- ----- $ 70 $ 3 ===== =====
NOTE F - PENDING MERGER WITH AMERICAN CARE COMMUNITIES, INC. On October 10, 1996 The Company and American Care Communities, Inc.,("American Care") a privately held company, entered into a binding agreement whereby American Care would be merged into the Company. American Care, based in Cary, North Carolina, currently owns or leases 15 assisted living facilities with approximately 1,350 units. Thirteen of the facilities are located in North Carolina, one in Florida and one in Maine. The purchase price for all shares of common stock of American Care will be 1,300,000 shares of Greenbriar common stock. The combination will be accounted for as a pooling of interests for accounting purposes. 13 GREENBRIAR CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- During 1994 the Company began a series of steps to focus its business on the development, management and ownership of assisted living properties. In addition to its assisted living operations, the Company's historical businesses during the past five years have included ownership and operation of skilled nursing centers, real estate investments, and manufacture and leasing of electric convenience vehicles and wheelchairs. The nursing centers and convenience vehicle businesses have been sold, and the real estate investments are being liquidated. Also, in 1994 and 1995, the Company sold its existing assisted living/retirement facilities. Revenues and earnings in years prior to 1996 are attributed to these prior businesses. During 1994, the Company began independently to develop its assisted living business, began construction on its first assisted living facility in July 1995, and opened such facility to residents on May 30, 1996. By September 30, 1996, the Company had seven assisted living facilities under construction (i.e., construction activities have commenced and are ongoing) and was developing eleven additional assisted living facilities. In order to increase the Company's presence in the assisted living industry, the Company acquired Wedgwood in March 1996. Liquidity and Capital Resources - ------------------------------- At September 30, 1996, the Company had working capital of $4,179,000. During the first quarter of 1996, the Company sold the Mobility Group, which was a continuation of the Company's program of selling its non-strategic assets and using the proceeds to invest in existing operations. The sale of the Mobility Group did not have a material impact on the Company's liquidity. In March 1996, the Company acquired Wedgwood. As of September 30, 1996, the Company had assets of $94,899,000, liabilities of $54,502,000 and stockholders' equity of $40,397,000. Net cash used in operating activities during the nine months ended September 30, 1996 was $2,360,000 principally constituting general and administrative expenses and in anticipation of continued growth the cost of locating and developing new sites for assisted living facilities. Net cash used in investing activities during the nine months ended September 30, 1996 was $7,694,000 resulting primarily from development and construction activities of assisted living facilities. Net cash provided by financing activities during the nine months ended September 30, 1996 was $7,080,000 resulting principally from the proceeds from loans which were used by the Company to finance the development and construction of assisted living facilities. During the past five years the Company has met its needs for liquidity and capital resources primarily from profitable sales of assets acquired for investment, and, to a lesser extent, from cash flow from operated businesses. The assets acquired and sold have included real estate properties acquired in the merger in 1993 with EquiVest, Inc. ("EquiVest"), six skilled nursing facilities, two assisted living/retirement centers, the Mobility Group, and an eating disorder facility. 14 GREENBRIAR CORPORATION Liquidity and Capital Resources - Continued - ------------------------------- As of September 30, 1996 the Company owns three retail centers located in Georgia and one shopping center in North Carolina. The Company has an agreement for the sale of the three retail centers and anticipates the sale will occur in the fourth quarter of 1996. The Company is seeking a buyer for the North Carolina property. The Company anticipates that the properties will be sold for an amount which at least equals the book value of $5,405,000. Since January 1, 1994, these sources of cash from investment activities included approximately $18,200,000 received in January 1995 from the sale of the Fountainview retirement facility in West Palm Beach, Florida; approximately $26,600,000 in proceeds from the sale of the properties acquired in the merger with EquiVest; and approximately $6,900,000 proceeds from the sale of the Rivermont retirement facility in December 1994. Net cash used in financing activities since January 1, 1994 have consisted primarily of repayments of mortgage indebtedness as real estate investments were sold totaling approximately $50,000,000, payments of preferred dividends totaling approximately $400,000, and repurchases of common stock totaling approximately $2,000,000, offset by additional borrowings of approximately $15,600,000 for real estate investments and working capital. The Company will utilize additional financing to develop additional assisted living facilities currently under construction and development. Seven facilities were under construction as of September 30, 1996. The Company is responsible for arranging financing for six of them and a development partner is responsible for arranging financing for the seventh. The six facilities for which the Company is arranging financing are subject to fixed cost construction contracts and other arrangements estimated to cost approximately $25,421,000 and are estimated to be substantially completed by December 31, 1997. The Company currently has a number of sites under development (i.e., the site is under control and development activities such as site permitting, preparation of surveys, architectural plans and negotiation of construction contracts have commenced). The number of facilities that are actually constructed is dependent, in large part, on the availability of financing for both construction and start up costs. Further, the Company's development growth will be balanced with its acquisition of existing facilities. As previously noted the Company merged with Wedgwood and is in the process of completing a merger with American Care. As of September 30, 1996, the Company has loans in place or has received commitments for future financing, subject, in the case of the commitments, to final documentation, as follows: 15 GREENBRIAR CORPORATION Liquidity and Capital Resources - Continued - ------------------------------- (i) Health Care REIT, Inc. has issued a commitment to provide $60 million over three years to acquire and pay 100% of the construction costs of assisted living facilities to be leased to the Company. The term of the leases will range from 11 years to 14 years plus two five year renewal options, with lease payments based upon the interest rate on U.S. Treasury notes plus 3.75%, subject to inflation adjustments not to exceed .25% per year. A 1% commitment fee is required. The Company will have the option to purchase each facility at the end of the term for its original cost plus 50% of the increase in its fair market value. As additional security to the lessor, the Company will provide a letter of credit for 5% of the amount financed, a first lien on personal property and receivables of the facility, and subordination of management fees and rentals from subtenants. (ii) In 1995 Health Care REIT, Inc. provided mortgage loan commitments for two facilities totaling $16,891,000. Of that amount, $4,536,000 was used to refinance one of the facilities (Camelot) and $5,625,000 is being used to construct another facility (Villa de la Rosa) which will open in the fourth quarter of 1996. The balance includes $5,160,000 to fund construction of the Camelot Assisted Living facility scheduled to begin construction in the third quarter of 1996 and $645,000 to fund certain improvements to the existing Camelot facility that is currently under construction, along with $925,000 for the construction of a second phase at Villa de la Rosa, which is not presently scheduled for development and is not included in the development and construction total. The construction loans convert to term loans upon completion of construction. The term loans mature in seven to ten years, initially bear interest at a rate of 4.5% over the corresponding U.S. Treasury Note rate and are secured by the facilities, an assignment of leases, rents and management contract, letters of credit, and an assignment of the facilities licenses and permits. (iii) Commitments from First National Bank & Trust Co. of McAlester, Oklahoma of $5.2 million to provide mortgage financing for the two assisted living facilities under construction in Muskogee, Oklahoma and Sherman, Texas. Such loans require a 2% commitment fee and are payable in 10 years (but callable at the discretion of the bank in 5 years) based on a 20 year amortization, with interest at prime plus 2% (subject to a minimum interest rate of 8.70% and a maximum interest rate of 12.75%). 16 GREENBRIAR CORPORATION Liquidity and Capital Resources - Continued - ------------------------------- (iv) In 1995 Investors Real Estate Trust ("IRET") issued a commitment to provide 100% of the construction costs up to $2,810,000 for the Sweetwater Springs, Georgia facility that opened in October 1996. Upon completion the facility will be leased to the Company for a term of 15 years. In 1996 the commitment was increased by $1,540,000 to a maximum of $4,350,000 in order to provide for the construction of a second phase of the facility, consisting of 16 Alzheimer's special care units. The monthly lease payments will be based on the funded amount and on annual interest rates of 11.0% for the first five years, 12.65% for the next five years and 14.55% for the last five years of the lease. The Company has an option to purchase the facility at fair market value during the first nine months of the fourteenth year of the lease. The lease is secured by the facility. In addition to development and construction financing, Comerica Bank-Texas has issued a commitment to provide $1,600,000 to finance buses and other vehicles to transport residents of the Company's facilities. Each vehicle will be financed at 90% of cost, and the loan for each vehicle will be amortized over 48 months. The interest rate will be prime plus one percent. The Company believes it has adequate resources to complete its facilities currently under construction and development and currently plans to use the balance of such committed sources and its net working capital in excess of operating needs for future development of assisted living facilities. Future development activities of the Company are dependent upon obtaining capital and financing through various means, including financing obtained from sale/leaseback transactions, construction financing, long-term state bond financing, debt or equity offerings and, to the extent available, cash generated from operations. There can be no assurance that the Company will be able to obtain adequate capital to finance its projected growth. Although the Company announced in October, 1996 that it planned to file a registration statement for a public offering of common stock such offer has been postponed pending the completion of the American Care merger. RESULTS OF OPERATIONS - --------------------- THREE AND NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO THREE AND NINE END MONTH PERIOD ENDED SEPTEMBER 30, 1995. Revenues and Operating Expenses from Assisted Living Operations - --------------------------------------------------------------- Effective March 31, 1996 the Company acquired Wedgwood which operates 16 assisted living facilities in six states, with a capacity for 1,276 residents, consisting of 15 facilities owned by the Company or in which it has ownership or leasehold interest and one facility managed for a third party. The revenue and related operating expenses from the assisted living operations reflect the operations of those 15 facilities, as well as, one facility which opened in June 1996. 17 GREENBRIAR CORPORATION
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1996 (Amounts in thousands) Stabilized Start-up Total Facilities Facilities (1) (2) ---------- ---------- ----- Assisted living facility income $3,940 $ 553 $4,493 Assisted living facility operating expenses 2,268 574 2,842 ------ ------ ------ Gross operating income 1,672 (21) 1,651 Lease expense 371 61 432 Facility depreciation & amortization 320 101 421 ------ ------ ------ Income(loss)from facility operations $ 981 $ (183) $ 798 ====== ====== ====== NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 (Amounts in thousands) Stabilized Start-up Total Facilities Facilities (1) (2) ---------- ---------- ----- Assisted living facility income $7,851 $ 961 $8,812 Assisted living facility operating expenses 4,507 1,041 5,548 ------ ------ ------ Gross operating income 3,344 (80) 3,264 Lease expense 764 122 886 Facility depreciation & amortization 655 171 826 ------ ------ ------ Income(loss)from facility operations $1,925 $ (373) $1,552 ====== ====== ======
(1) Stabilized facilities are those facilities that have been operating for one year or have achieved stabilized occupancy of 95% (2) Start-up facilities are those facilities that have not been operating for one year and have not achieved a stabilized occupancy of 95% or more. (3) The Company had 12 stabilized and 4 start-up facilities. (4) The Company had no assisted living facilities during the first quarter of 1996. 18 GREENBRIAR CORPORATION Corporate General and Administrative Expenses - --------------------------------------------- Corporate general and administrative expenses were $881,000 and $2,400,000 for the three and nine months ended September 30, 1996. Such expenses for the comparable period in 1995 were $647,000 and $1,947,000. The increases were due primarily to the acquisition of Wedgwood. Interest Expense - ---------------- Interest expense for the three and nine months ended September 30, 1996 was $816,000 and $1,614,000 as compared to none and $98,000 for the comparable periods in 1995. The increase in interest expense represents the interest incurred on the mortgage debt and financing obligations on the Wedgwood properties. Gain on Sales of Assets - ----------------------- Gain on sales of assets during the three and nine month periods ended September 30, 1995 were $1,146,000 and $6,950,000 respectively. These gains were from the sale of the Fountainview in January 1995 ($5,149,000), the sale of an economic interest in a legal claim in June 1995 ($655,000) and the sale of the Company's rights to the funds in an escrow account in the year 2028 ($1,146,000). Discontinued Operations - ----------------------- Earnings from discontinued operations include both the Mobility Group, which was sold in February 1996, and the real estate operations that are classified as held for sale. The Mobility Group had earnings of $29,000 and $8,000 for the three and nine months ended September 30, 1995 respectively. The real estate operations had earnings of $54,000 and $170,000 for the three and nine months ended September 30, 1996, respectively, and earnings of $121,000 and $154,000 for the comparable periods in 1995. The sale in the first quarter of 1996 of the Mobility Group resulted in a gain on sale, net of tax, of $580,000. Effect of Inflation - ------------------- The Company's principal sources of revenues are from resident fees from Company- owned or leased assisted living facilities and management fees from facilities operated by the Company for third parties. The operation of the facilities is affected by rental rates which are highly dependent upon market conditions and the competitive environment in the areas where the facilities are located. Compensation to employees is the principal cost element relative to the operations of the facilities. Although the Company has not historically experienced any adverse effects of inflation on salaries or other operating expenses, there can be no assurance that such trends will continue or that should inflationary pressures arise that the Company will be able to offset such costs by increasing rental rates or management fees. 19 GREENBRIAR CORPORATION Forward Looking Statements - -------------------------- Certain statements included in this Managements' Discussion and Analysis are forward looking statements that predict the future development of the Company. The realization of these predictions will be subject to a number of variable contingencies, and there is no assurance that they will occur in the time frame proposed. The risks associated with the potential actualization of the Company's plans include: contractor delays, the availability and cost of financing, availability of managerial oversight and regulatory approvals, to name a few. 20 PART II - OTHER INFORMATION 21 GREENBRIAR CORPORATION PART II. OTHER INFORMATION Item 1. Legal proceedings SUNRISE HEALTHCARE CORPORATION VS. CAREAMERICA, INC. - ---------------------------------------------------- Eldercare Housing Foundation ("Eldercare"), owned a nursing home in Tucson, Arizona and Sunrise Healthcare Corporation ("Sunrise") had a management contract to manage the home. Eldercare subsequently awarded the management contract to CareAmerica, a subsidiary of the Company. Sunrise (and a related company, Sundance) filed a lawsuit against CareAmerica, Inc., and others alleging, generally, that the defendants interfered with Sunrise's management contract. In August 1996 this matter was settled for $120,000. SOUTHERN CARE CORPORATION VS. CAREAMERICA AND GREENBRIAR CORPORATION - -------------------------------------------------------------------- In Southern Care Corp. v. Medical Resource Companies of America (former name of Greenbriar), Civil Action No. 94-1132-K, Superior Court of Chatham County, Georgia, the plaintiff seeks damages exceeding $1,500,000 relating to the management and operation of four nursing homes the Company sold to plaintiff. The Company has filed a counterclaim for breach of the management contract between the homes and a Company subsidiary. At the same time that plaintiff unilaterally and without notice terminated the management contract, the plaintiff also claimed that indebtedness of approximately $6.7 million assigned to the Company was discharged. Plaintiff claims that the discharge occurred at the time of the assignment despite the facts i) that the assignment had occurred fourteen months prior to their claim of discharge, ii) that plaintiff, at the time of the assignment, had acknowledged in writing that the indebtedness was due and owing, iii) that plaintiff paid approximately $1 million toward the indebtedness subsequent to the assignment, and iv) that plaintiff apparently has continued to accrue the indebtedness on its financial statements. The Company disputes this claim and has filed a counterclaim to confirm the indebtedness. The Company plans to vigorously contest and defend and vigorously pursue its counterclaims against plaintiff. The Company does not believe it has breached any obligation to plaintiff regarding management of the nursing homes and does not believe plaintiff will prevail on the merits, although there can be no assurance in this regard. The Company also does not believe the approximately $6.7 million of indebtedness was discharged, and believes that it will prevail on this counterclaim, although there can be no assurance. The amount of the indebtedness, including accrued interest, is approximately $10 million. The Company's basis in the 22 GREENBRIAR CORPORATION PART II. OTHER INFORMATION - Continued indebtedness, net of related deferred gains, is approximately $4.2 million. In 1995 the plaintiff and the Company each filed cross motions for summary judgment on the issue of whether the indebtedness was discharged. In October 1996 the trial court granted plaintiff's motion. A notice of appeal has been filed by the Company on that ruling and an appeal will be filed. The Company does not believe that the court's ruling is correct, and believes that it will prevail on its appeal, although there can be no assurance. In addition to other causes of action that the Company may file against the plaintiff, the Company filed a negligence action against a law firm and against a lawyer with that firm, relating to their involvement with the assignment, described above. The Company has been advised that these defendants carry a professional liability policy with limits of $5 million. These defendants deny liability and have filed a cross-action against among others, a former officer and director of the Company. The Company believes should it not prevail against Southern Care on the indebtedness issue, that it will prevail on this claim, although there can be no assurance. HEALTH CARE PROPERTY INVESTORS VS. GREENBRIAR CORPORATION - --------------------------------------------------------- In October, 1996, Health Care Property Investors filed a complaint for unspecified damages against the Company, Victor Lund, a director of the Company, and related entities and others. Health Care Property Investors alleges that entities related to the Company had breached terms of two leases of facilities (the "Leases") through a transfer of control of the tenant without the payment of "transfer consideration" called for in the leases. In addition, Health Care Property Investors alleges that the Company tortiously interfered with the Leases because of the transfer. The Company believes that transfer consideration is not due, pursuant to the Leases, as Victor Lund continued to own a majority interest in the tenants and that there has been no tortious interference in the Leases. The Company has been named as defendant in other lawsuits in the ordinary course of business. Management of the Company is of the opinion that these lawsuits will not have a material effect on the financial condition of the Company. 23 GREENBRIAR CORPORATION PART II. OTHER INFORMATION - Continued Item 4. Submission of matters to a vote of security holders At the special meeting of stockholders on September 16, 1996, the Stockholders approved resolutions permitting the conversion of Series D Preferred Stock into common stock at the rate of one share of common for each two shares of Series D Preferred Stock outstanding, and conversion of the Series E Preferred Stock into common stock at the rate of one share of common for each 1.2 shares of Series E Preferred Stock outstanding. The results of the vote to authorize the conversion of Series D and E Preferred Stock were as follows:
Series D Preferred Series E Preferred ------------------ ------------------ Shares Shares ------ ------ For 2,806,604 2,859,797 Opposed 2,976 2,914 Abstained 1,795 1,350
Item 6. Exhibits and Reports on Form 8-K a) The following exhibits are filed with this report: 27.1 Financial data schedule required by Item 601 of Regulation S-B b) There were no reports on Form 8-K filed by the Company during the quarter ended September 30, 1996 24 GREENBRIAR CORPORATION SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by undersigned, thereunto duly authorized. Greenbriar Corporation Date: November 15, 1996 By: /s/ Gene S. Bertcher -------------------------- Executive Vice President Chief Financial Officer 25 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB - - CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND CONSOLIDATED STATEMENT OF EARNINGS (LOSS) FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30,1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 4,225 0 746 0 0 11,527 65,328 1,106 94,899 7,348 43,034 0 70 52 40,275 94,899 0 8,898 0 7,260 0 0 1,614 (1,723) (656) (1,067) 750 0 0 (317) (.16) (.16)
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