-----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, OukBhnMmY4F3kDMs1eBoyet7DulrtjSAcGwHA6gcWpaGUk5wLUzgskh7LIh40Krm RNiA9ekZJ1cq8gm5QdLNcQ== 0000930661-97-000623.txt : 19970319 0000930661-97-000623.hdr.sgml : 19970319 ACCESSION NUMBER: 0000930661-97-000623 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970318 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: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-08187 FILM NUMBER: 97558175 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 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 8-K/A CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 31, 1996 GREENBRIAR CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEVADA 0-8187 75-239947 - -------------------- --------------- --------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 4265 KELLWAY CIRCLE, ADDISON, TEXAS 75244 - ------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 407-8400 ---------------- ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. AMERICAN CARE COMMUNITIES, INC. On December 31, 1996, the Company acquired American Care Communities, Inc. ("AMERICAN CARE COMMUNITIES, INC."), a private company, by means of a merger of AMERICAN CARE COMMUNITIES, INC. into a wholly owned subsidiary of Registrant. AMERICAN CARE COMMUNITIES, INC. was founded in July 1993 to acquire, develop and operate assisted living facilities. AMERICAN CARE COMMUNITIES, INC., which is headquartered in Cary, North Carolina, currently owns, operates or manages a total of 15 assisted or independent living facilities with a capacity for 1,275 residents. AMERICAN CARE COMMUNITIES, INC. has thirteen facilities located in North Carolina, one in Florida and one in Maine. The consideration for the American Care acquisition was 1,300,000 shares of unregistered Greenbriar common stock issued to the sellers who consist of twelve persons, all of whom were previously unrelated to Greenbriar Corporation. Such consideration was determined by means of arm's length negotiations among the parties. Upon closing of the acquisition, Floyd B. Rhoades, who until the acquisition, was Chairman, President, Chief Executive Officer and the majority shareholder of AMERICAN CARE COMMUNITIES, INC., entered into a three year employment agreement to become President and Chief Executive Officer of Greenbriar Corporation. Mr. Rhoades has also become a member of the Company's Board of Directors and its Executive Committee. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) and (b) The audited and unaudited interim financial information and pro forma financial information regarding American Care Communities, Inc. ("American Care") are hereby incorporated by reference from pages F-11 through F-17 and pages F-38 through F-52 of Greenbriar's Proxy Statement dated December 19, 1996 relating to the Special Meeting of Stockholders held December 30, 1996. (c) Exhibits. The following exhibits are being filed herewith: -------- 2. Agreement and Plan of Merger (previously filed) 99.1 The following pages of Greenbriar's Proxy Statement dated December 19, 1996: pages F-11 through F-17 and F-38 through F-52. 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 hereunto duly authorized. GREENBRIAR CORPORATION Dated:____________ By: -------------------------------------- Name: Gene S. Bertcher Title: Chief Financial Officer EX-99.1 2 GREENBRIAR'S PROXY FINANCIAL PAGES 12/19/96 EXHIBIT 99.1 PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma condensed combined financial information has been prepared by the Company based on the audited financial statements and the related notes thereto of the Company, Wedgwood and American Care for the years ended December 31, 1994 and 1995, the unaudited financial statements of the Company and American Care as of September 30, 1996 and for the nine months ended September 30, 1995 and 1996, and Wedgwood for the three months ended March 31, 1996, and give effect to the American Care and Wedgwood Acquisitions as though they occurred January 1, 1994, and reflect the assumptions and adjustments described in the accompanying notes. The Wedgwood Acquisition has been accounted for using the purchase method of accounting. The results of operations of Wedgwood are reflected in the historical statement of operations of the Company beginning April 1, 1996. The American Care Acquisition has been accounted for as a pooling of interests. The following unaudited pro forma condensed combined financial information is not necessarily indicative of the actual results that would have been achieved if the Wedgwood and American Care Acquisitions had actually been completed as of the date indicated, or which may be realized in the future. The pro forma statement of operations for the years ended December 31, 1995 and 1994 and the nine months ended September 30, 1995 also gives effect to the disposition of The Fountainview (January 1995). The unaudited pro forma condensed combined financial information should be read in conjunction with the financial statements of the Company and American Care and the related notes thereto included elsewhere in this Proxy. See "Index to Consolidated Financial Statements." F-11 GREENBRIAR CORPORATION PRO FORMA COMBINED BALANCE SHEET (UNAUDITED) (Amounts in thousands) September 30, 1996
Greenbriar American Pro forma ASSETS Corporation Care Adjustments Combined ----------- -------- ----------- -------- CURRENT ASSETS Cash and cash equivalents $ 4,225 $ 24 $ - $ 4,249 Accounts receivable Trade 746 353 - 1,099 Other - 99 - 99 Real estate operations held for sale, at lower of cost or market 5,405 - - 5,405 Other current assets 1,151 1,388 - 2,539 ------- ------- ----- -------- Total current assets 11,527 1,864 - 13,391 INVESTMENT IN SECURITIES, AT COST 4,266 - - 4,266 NOTES RECEIVABLE 8,959 - - 8,959 PROPERTY AND EQUIPMENT, AT COST Land 7,832 2,435 - 10,267 Buildings and improvements 48,628 9,295 - 57,923 Furniture, fixtures, and equipment 2,078 1,561 - 3,639 Construction in process 6,790 5,214 - 12,004 ------- ------- ----- -------- 65,328 18,505 - 83,833 Less accumulated depreciation and amortization 1,106 911 - 2,017 ------- ------- ----- -------- 64,222 17,594 - 81,816 RESTRICTED CASH AND INVESTMENTS 3,521 - - 3,521 OTHER ASSETS 2,404 1,833 - 4,237 ------- ------- ----- -------- $94,899 $21,291 $ - $116,190 ======= ======= ===== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term obligations $ 977 $ 5,638 $(500)(7) $ 6,115 Due to affiliates 589 358 - 947 Long-term debt collateralized by property under contract of sale 903 - - 903 Accounts payable - trade 2,335 1,301 - 3,636 Accrued expenses 1,455 1,126 800 (6) 2,721 Other current liabilities 1,089 37 - 1,126 ------- ------- ----- -------- Total current liabilities 7,348 8,460 300 15,448 LONG-TERM DEBT, less current maturities 43,034 14,788 - 57,822 DEFERRED INCOME TAXES 1,037 - - 1,037 DEFERRED GAIN 3,083 - - 3,083 STOCKHOLDERS' EQUITY (DEFICIT) 40,397 (1,957) (300)(6)(7) 38,800 ------- ------- ----- -------- $94,899 $21,291 $ - $116,190 ======= ======= ===== ========
See accompanying explanatory notes. F-12 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) For the year ended December 31, 1994 (in thousands, except per share amounts)
Combined Less operations before of the American Foundationview Pro Forma Care American Pro Forma Company (4) Wedgwood Adjustments acquisition Care Adjustments Combined ------- -------------- -------- ------------ ----------- -------- ----------- -------- Revenues Assisted living facilities $ 7,939 $(6,000) $12,018 $ - $13,957 $ 3,708 $ - $17,665 Expenses Assisted living facilities 5,059 (4,340) 8,585 - 9,304 2,766 - 12,070 Facility depreciation and amortization - - 1,216 (95)(1) 1,121 233 - 1,354 General and administrative 3,502 (293) 738 - 3,947 615 - 4,562 ------- ------- ------- ------ ------- ------- ----- ------- 8,561 (4,633) 10,539 (95) 14,372 3,614 - 17,986 ------- ------- ------- ------ ------- ------- ----- ------- Operating profit (loss) (622) (1,367) 1,479 95 (415) 94 - (321) Other income (expense) Interest and dividend income 208 - 74 - 282 8 - 290 Interest expense (2,221) 1,647 (2,191) - (2,765) (540) - (3,305) Gain on sales of assets 2,803 - - - 2,803 - - 2,803 Other - - 77 - 77 192 - 269 ------- ------- ------- ------ ------- ------- ----- ------- 790 1,647 (2,040) - 397 (340) - 57 Earnings (loss) from continuing operations before income taxes 168 280 (561) 95 (18) (246) - (264) Income tax expense (benefit) (201) - - 194 (3) (7) - (93)(3) (100) ------- ------- ------- ------ ------- ------- ----- ------- Earnings (loss) from continuing operations 369 280 (561) (99) (11) (246) 93 (164) Preferred dividend requirement (327) - - (320)(2) (647) - - (647) ------- ------- ------- ------ ------- ------- ----- ------- Earnings (loss) from continuing operations allocable to common stockholders $ 42 $ 280 $ (561) $ (419) $ (658) $ (246) $ 93 $ (811) ======= ======= ======= ====== ======= ======= ===== ======= Earnings (loss) per share from continuing operations $0.01 $(0.16) Weighted average number of common and equivalent shares outstanding 3,679 4,979
See accompanying explanatory notes. F-13 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) For the year ended December 31, 1995 (in thousands, except per share amounts)
Combined Less operations before of the American Foundationview Pro Forma Care American Pro Forma Company (4) Wedgwood Adjustments acquisition Care Adjustments Combined ------- -------------- -------- ------------ ----------- -------- ----------- -------- Revenues Assisted living facilities $ 557 $ (557) $14,940 $ - $14,940 $ 6,811 $ - $21,751 Expenses Assisted living facilities 322 (322) 10,916 - 10,916 4,815 - 15,731 Facility depreciation and amortization - - 1,374 (95)(1) 1,279 483 - 1,762 General and administrative 2,688 (38) 959 - 3,609 1,260 - 4,869 ------- ------- ------- ------- ------- ------- ------- ------- 3,010 (360) 13,249 (95) 15,804 6,558 - 22,362 ------- ------- ------- ------- ------- ------- ------- ------- Operating profit (loss) (2,453) (197) 1,691 95 (864) 253 - (611) Other income (expense) Interest and dividend income 1,176 - 160 - 1,336 23 - 1,359 Interest expense (101) 73 (2,843) - (2,871) (1,447) - (4,318) Gain on sales of assets 6,950 (5,149) - - 1,801 - - 1,801 Other 239 - 94 - 333 646 - 979 ------- ------- ------- ------- ------- ------- ------- ------- 8,264 (5,076) (2,589) - 599 (778) - (179) Earnings (loss) from continuing operations before income taxes 5,811 (5,273) (898) 95 (265) (525) - (790) Income tax expense (benefit) 94 - - (184)(3) (90) - (210)(3) (300) ------- ------- ------- ------- ------- ------- ------- ------- Earnings (loss) from continuing operations 5,717 (5,273) (898) 279 (175) (525) 210 (490) Preferred dividend requirement (225) - - (320)(2) (545) - - (545) ------- ------- ------- ------- ------- ------- ------- ------- Earnings (loss) from continuing operations allocable to common stockholders $ 5,492 $(5,273) $ (898) $ (41) $ (720) $ (525) $ 210 $(1,035) ======= ======= ======= ======= ====== ======= ======= ======= Earnings (loss) per share from continuing operations $1.55 $(0.21) Weighted average number of common and equivalent shares outstanding 3,539 4,839
See accompanying explanatory notes. F-14 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) For the nine months ended September 30, 1995 (in thousands, except per share amounts)
Combined Less operations before of the American Foundationview Pro Forma Care American Pro Forma Company (4) Wedgwood Adjustments acquisition Care Adjustments Combined ------- -------------- -------- ------------ ----------- -------- ----------- -------- Revenues Assisted living facilities $ 555 $ (555) $10,905 $ - $10,905 $ 4,773 $ - $15,678 Expenses Assisted living facilities 276 (276) 7,980 - 7,980 2,974 - 10,954 Facility depreciation and amortization 42 (42) 893 (77)(1) 816 342 - 1,158 General and administrative 1,947 (40) 686 - 2,593 868 - 3,461 ------- ------- ------- ------- ------- ------- ------- ------- 2,265 (358) 9,559 (77) 11,389 4,184 - 15,573 ------- ------- ------- ------- ------- ------- ------- ------- Operating profit (loss) (1,710) (197) 1,346 77 (484) 589 - 105 Other income (expense) Interest and dividend income 941 - 61 - 1,002 4 - 1,006 Interest expense (98) 73 (1,958) - (1,983) (1,027) - (3,010) Gain on sales of assets 6,950 (5,149) - - 1,801 - - 1,801 Other 14 - 123 - 137 164 - 301 ------- ------- ------- ------- ------- ------- ------- ------- 7,807 (5,076) (1,774) - 957 (859) - 98 Earnings (loss) from continuing operations before income taxes 6,097 (5,273) (428) 77 473 (270) - 203 Income tax expense (benefit) 2,069 - - (1,889)(3) 180 - (103)(3) 77 ------- ------- ------- ------- ------- ------- ------- ------- Earnings (loss) from continuing operations 4,028 (5,273) (428) 1,966 293 (270) 103 126 Preferred dividend requirement (176) - - (240)(2) (416) - - (416) ------- ------- ------- ------- ------- ------- ------- ------- Earnings (loss) from continuing operations allocable to common stockholders $ 3,852 $(5,273) $ (428) $ 1,726 $ (123) $ (270) $ 103 $ (290) ======= ======= ======= ======= ======= ======= ======= ======= Earnings (loss) per share from continuing operations $1.08 $(0.06) Weighted average number of common and equivalent shares outstanding 3,551 4,851
See accompanying explanatory notes. F-15 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) For the nine months ended September 30, 1996 (in thousands, except per share amounts)
Combined before American Pro Forma Care American Pro Forma Company Wedgwood(5) Adjustments acquisition Care Adjustments Combined ------- ----------- ------------ ----------- -------- ----------- -------- Revenues Assisted living facilities $ 8,898 $ 4,262 $ - $13,160 $10,894 $ - $24,054 Expenses Assisted living facilities 5,548 3,182 - 8,730 7,077 - 15,807 Lease expense 886 - - 886 1,755 - 2,641 Facility depreciation and amortization 826 488 (95)(1) 1,219 479 - 1,698 General and administrative 2,400 322 - 2,722 1,519 - 4,241 ------- ------- ------- ------- ------- ------- ------- 9,660 3,992 (95) 13,557 10,830 - 24,388 ------- ------- ------- ------- ------- ------- ------- Operating profit (loss) (762) 270 95 (397) 64 - (333) Other income (expense) Interest and dividend income 674 13 - 687 8 - 695 Interest expense (1,614) (845) - (2,459) (1,309) - (3,768) Gain on sales of assets 32 - - 32 - - 32 Other (53) 28 - (25) 113 - 88 ------- ------- ------- ------- ------- ------- ------- (961) (804) - (1,765) (1,188) - (2,953) Loss from continuing operations before income taxes (1,723) (534) 95 (2,162) (1,124) - (3,286) Income tax benefit (656) - (167)(3) (823) - (426)(3) (1,249) ------- ------- ------- ------- ------- ------- ------- Loss from continuing operations (1,067) (534) 262 (1,339) (1,124) 426 (2,037) Preferred dividend requirement (247) - (80)(2) (327) - - (327) ------- ------- ------- ------- ------- ------- ------- Loss from continuing operations allocable to common stockholders $(1,314) $ (534) $ 182 $(1,666) $(1,124) $ 426 $(2,364) ======= ======= ======= ======= ======= ======= ======= Loss per share from continuing operations $(0.37) $(0.49) Weighted average number of common and equivalent shares outstanding 3,559 4,859
See accompanying explanatory notes. F-16 NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) A. The pro forma condensed combined financial statements reflect the acquisition by the Company in March 1996 of substantially all of the assets and liabilities of a number of companies under common control and managed by Wedgwood and the proposed acquisition of American Care. The total purchase price for Wedgwood was $17,223,000, consisting of preferred stock valued at $16,203,000 and cash and transaction costs totaling approximately $1,020,000. The preferred stock issued includes 675,000 shares of Series D Preferred Stock which was issued to James R. Gilley, Chief Executive Officer of the Company, and members of his family. These shares were valued at Mr. Gilley's cost in the acquired property of approximately $2,300,000. The consideration for the proposed acquisition of American Care, which is to be accounted for as a pooling of interests, is 1,240,000 shares of the Company's common stock. B. The pro forma financial statements reflect the following adjustments: 1. To reflect the difference in depreciation and amortization on Wedgwood property and equipment and other assets due to change in asset bases and lives under purchase accounting using lives from 5 to 35 years; Wedgwood historically had utilized lives of 5 to 28 years. 2. To reflect the dividend requirement on the Series D Preferred Stock issued in the acquisition of Wedgwood. 3. To adjust income tax expense based upon applying the statutory tax rate to pre-tax income. If the Wedgwood acquisition had taken place at January 1, 1994, the deferred tax liabilities arising from the transaction would have eliminated the need for a change in the deferred tax asset valuation allowance at that date. Accordingly, there would have been no change in the valuation allowance during the year ended December 31, 1995 and, therefore, the effective tax rate would have approximated 38%. The Company considers the use of its net operating loss carryforwards as a result of Wedgwood acquisition to be more likely than not. 4. In January 1995, the Company sold The Fountainview. The pro forma statements of operations reflect the operations of the Company as adjusted to reflect this disposition. 5. The statement of operations of Wedgwood covers the three months ended March 31, 1996. Beginning April 1, 1996, Wedgwood operations are consolidated with the Company. 6. To accrue professional fees, estimated by the Company to be $800,000, related to the proposed merger with American Care. These expenses as well as professional fees provided in exchange for options, valued at approximately $200,000, to purchase shares of the Company's common stock, have not been reflected in the pro forma combined statements of operations, but will be included in future statements of operations of the Company. 7. To reflect the retirement of a $500,000 note payable in exchange for 44,643 shares of the Company's common stock. F-17 Report of Independent Accountants --------------------------------- The Board of Directors American Care Communities, Inc. and Subsidiaries We have audited the accompanying combined balance sheet of American Care Communities, Inc. and Subsidiaries as of December 31, 1995, and the related combined statements of operations and accumulated deficit, and cash flows for the years ended December 31, 1995 and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of American Care Communities, Inc. and Subsidiaries as of December 31, 1995, and the combined results of their operations and their cash flows for the years ended December 31, 1995 and 1994 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note J to the financial statements, the Company has suffered recurring losses from operations and has a stockholders' deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note J. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Coopers & Lybrand L.L.P. Raleigh, North Carolina February 16, 1996 F-38 American Care Communities, Inc. and Subsidiaries COMBINED BALANCE SHEETS
December 31, September 30, ASSETS 1995 1996 ------------- ------------ (unaudited) Current assets Cash and cash equivalents $ 423,521 $ 24,421 Resident accounts receivable, net of allowance for uncollectible accounts $74,193 in 1995 and $48,829 in 1996 235,625 353,201 Accounts receivable, stockholder 12,000 12,000 Other accounts receivable 257,929 86,542 Prepaid expenses and inventories 70,610 80,774 Deposits 23,060 22,070 Other current assets 325 1,285,228 ----------- ----------- Total current assets 1,023,070 1,864,236 Property and equipment, at cost Land and land improvements 2,071,702 2,435,413 Leasehold improvements 29,219 207,635 Buildings and improvements 9,976,598 9,087,780 Furniture and equipment 1,109,689 1,378,326 Transportation equipment 178,350 183,008 Construction in process 1,377,489 5,214,072 ----------- ----------- 14,743,047 18,506,234 Less accumulated depreciation and amortization 581,572 911,314 ----------- ----------- 14,161,475 17,594,920 Deposits 1,007,452 691,591 Goodwill, net of accumulated amortization of $53,431 in 1995 891,206 567,078 Organizational costs, net of accumulated amortization of $34,519 in 1995 and $47,866 in 1996 65,120 45,180 Deferred financing costs, net of accumulated amortization of $34,714 in 1995 and $72,010 in 1996 438,332 428,683 Covenant not to compete, net of accumulated amortization of $20,163 in 1995 89,837 - Deferred start-up costs - 99,585 Other deferred financing and acquisition costs 307,958 - ----------- ----------- $17,984,450 $21,291,273 =========== ===========
F-39 American Care Communities, Inc. and Subsidiaries COMBINED BALANCE SHEETS - CONTINUED
December 31, September 30, LIABILITIES AND STOCKHOLDERS' DEFICIT 1995 1996 ------------- -------------- (unaudited) Current liabilities Current maturities of long-term debt $ 817,925 $ 5,638,545 Notes payable, stockholder - 357,973 Accounts payable, trade 804,878 1,301,411 Accrued expenses 611,830 908,582 Accrued interest 140,824 217,024 Deferred income - 36,775 ----------- ----------- Total current liabilities 2,375,457 8,460,310 Notes payable, stockholder 357,974 - Long-term debt, less current maturities 16,083,705 14,787,917 ----------- ----------- 16,441,679 14,787,917 Stockholders' deficit Common stock; no par value; 100,000 shares authorized; 1,000 shares issued and outstanding at December 31, 1995 - - Additional paid-in capital 1,000 1,000 Accumulated deficit (833,686) (1,957,954) ----------- ----------- Total stockholders' deficit (832,686) (1,956,954) ----------- ----------- $17,984,450 $21,291,273 =========== ===========
The accompanying notes are an integal part of these statements. F-40 American Care Communities, Inc. and Subsidiaries COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Nine months ended Years ended December 31, September 30, ------------------------- ------------------------------- 1994 1995 1995 1996 ----------- ------------ ------------ ----------------- (unaudited) Revenues Rental income $3,707,698 $6,810,504 $4,773,332 $10,893,631 Other operating income 192,921 596,259 119,473 112,410 Interest income 8,331 22,619 3,826 7,879 ---------- ---------- ---------- ----------- Total revenues 3,908,950 7,429,382 4,896,631 11,013,920 Expenses Residence operating expenses 2,554,300 4,408,662 2,765,280 7,076,688 General and administrative 614,932 1,259,740 867,820 1,519,403 Rent expense 212,100 406,101 208,638 1,754,546 Depreciation and amortization 233,408 483,272 342,056 478,837 Interest expense 540,101 1,447,290 1,027,080 1,308,714 ---------- ---------- ---------- ----------- Total expenses 4,154,841 8,005,065 5,210,874 12,138,188 ---------- ---------- ---------- ----------- Loss before equity earnings in investment and loss on disposal of investment (245,891) (575,683) (314,243) (1,124,268) Equity earnings in investment - 90,363 44,573 - Loss on disposal of investment - (39,458) - - ---------- ---------- ---------- ----------- Net loss (245,891) (524,778) (269,670) (1,124,268) Accumulated deficit at beginning of year (63,017) (308,908) (308,908) (833,686) ---------- ---------- ---------- ----------- Accumulated deficit at end of year $ (308,908) $ (833,686) $ (578,578) $(1,957,954) ========== ========== ========== ===========
The accompanying notes are an integal part of these statements. F-41 American Care Communities, Inc. and Subsidiaries COMBINED STATEMENTS OF CASH FLOWS
Nine months ended Years ended December 31, September 30, -------------------------------- --------------------------- 1994 1995 1995 1996 ---------------- -------------- ------------- ------------ (unaudited) Cash flows from operating activities Net loss $ (245,891) $ (524,778) $ (269,670) $(1,124,268) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization 233,408 483,272 342,056 478,837 Gain on disposal of property - - - (3,472) Changes in assets and liabilities Resident accounts receivable (30,056) (205,569) (31,861) (117,576) Accounts receivable, stockholder 1,000 (12,000) (12,000) - Other accounts receivable 8,744 (250,839) 7,090 171,387 Prepaid expenses and inventories (16,275) (31,846) (1,754) (10,164) Other current assets (13,337) 13,012 13,337 (1,384,488) Accounts payable, trade 211,979 538,695 (6,660) 496,533 Accrued expenses 151,104 434,889 169,316 296,752 Accrued interest 40,717 78,979 76,486 76,200 Other current liabilities - - 21,417 - Deferred income (5,200) - - 36,775 ----------- ----------- ----------- ----------- Net cash provided by (used in) operating activities 336,193 523,815 307,757 (1,083,484) Cash flows from investing activities Acquisitions of assets (4,689,528) (7,369,187) (5,111,923) (5,334,715) Proceeds on sale of property - - - 1,575,000 Disposals of property and equipment 1,000 - - - Deposits on acquisitions (55,000) 56,988 73,266 8,442 Decrease (increase) in other assets (18,990) (126,782) (1,046,311) 353,503 ----------- ----------- ----------- ----------- Net cash used in investing activities (4,762,518) (7,438,981) (6,084,968) (3,397,770) Cash flows from financing activities Principal payments on long-term debt (278,515) (9,589,139) (142,455) (1,422,754) Proceeds from issuance of long-term debt 4,851,757 18,454,937 7,299,597 4,947,586 Deposits on financing obligations (32,500) (1,000,000) (1,000,000) 308,409 Deferred financing and acquisition costs - (781,004) (421,056) 248,913 ----------- ----------- ----------- ----------- Net cash provided by financing activities 4,540,742 7,084,794 5,736,086 4,082,154 ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalent 114,417 169,628 (41,125) (399,100) Cash and cash equivalents Beginning of year 139,476 253,893 253,893 423,521 ----------- ----------- ----------- ----------- End of year $ 253,893 $ 423,521 $ 212,768 $ 24,421 =========== =========== =========== =========== Supplemental disclosures of cash flow information - Cash paid during the year for interest $ 499,384 $ 1,368,311 $ 1,002,834 $ 1,419,438 =========== =========== =========== =========== Noncash investing activities - Goodwill associated with acquisition (disposition) of assets $ 451,522 $ 493,115 $ 361,766 $ (317,571) =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. F-42 American Care Communities, Inc. and Subsidiaries NOTES TO COMBINED FINANCIAL STATEMENTS NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Operations and Basis of Combination ----------------------------------- American Care Communities, Inc. and Subsidiaries (the "Company") was founded in 1993 with the mission of developing, acquiring, leasing and operating assisted living and retirement communities. The Company adheres to a philosophy of service that views residents as unique, important and valuable. At December 31, 1995, the Company either owned or operated a total of 14 assisted living residences located in North Carolina and Florida, and managed a residence located in Maine, in which a stockholder of the Company has a 10% non-controlling interest. The combined financial statements at December 31, 1995 include the accounts of American Care Communities, Inc. and the following wholly-owned subsidiaries; American Countytime, Inc., Rose Manor of Cary, Inc., American Care Communities of Sanford, Inc., American Care Communities of Florida, Inc. and Phoades/Powell, Inc. As permitted by ARB No. 51, the combined financial statements include the accounts of the following entities, which are affiliated companies to American Care Communities, Inc. and Subsidiaries, related through common ownership: Berne Village, LLC Graybrier, LLC Rose Terrace of Wendell, LLC Rose Tara Plantation, Inc. Lake James, LLC RRSP, Inc. All significant intercompany balances and transactions have been eliminated from the combined financial statements. Basis of Presentation --------------------- The accompanying financial statements have been prepared in accordance with principles contained in the American Institute of Certified Public Accountants Audit Guide "Audits of Providers of Health Care Services." Rental Income ------------- Rental income is reported at the estimated net realizable value from residents, third-party payors, and others for services rendered. The Company provides services to both responsible parties and residents covered under the North Carolina State Assistance Plan. F-43 American Care Communities, Inc. and Subsidiaries NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Concentration of Credit Risk ---------------------------- Financial instruments which potentially subject the Company to a concentration of credit risk consists principally of cash and cash equivalents and accounts receivable. The Company places its cash in federally insured financial institutions which limits its credit exposure. At December 31, 1995, the Company had $813,430 on deposit with two Federally insured financial institutions, which exceeds the $100,000 per institution FDIC insurance limit. The Company has accounts receivable, the collectibility of which is dependent upon the performance of certain governmental programs. Management does not believe there are significant credit risks associated with these governmental programs. With respect to the remaining portion of accounts receivable, an allowance for uncollectible accounts is provided in an amount equal to the estimated losses to be incurred in collection of the receivables. The allowance is based on historical collection experience and a review of the current status of the existing receivables. Depreciation and Amortization ----------------------------- Depreciation and amortization of property and equipment is computed using the straight-line method. The estimated useful lives of property and equipment are as follows: Land improvements 5 to 10 years Leasehold improvements 3 to 7 years Buildings and improvements 5 to 40 years Furniture and equipment 3 to 7 years Transportation equipment 3 to 5 years
Expenditures for repairs and maintenance are charged to expense as incurred. The costs of major renewals and betterments are capitalized and depreciated over their estimated useful lives. Upon disposition of property and equipment, the cost and related accumulated depreciation amounts are relieved and any resulting gain or loss is reflected in operations. Cash and Cash Equivalents ------------------------- Cash and cash equivalents include cash on hand and on deposit with banks, as well as financial instruments with a maturity of 90 days or less when purchased. Inventory --------- The Company values its inventory, consisting principally of food and medical supplies, at the lower of cost (first-in, first-out) or market. F-44 American Care Communities, Inc. and Subsidiaries NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Organizational Costs -------------------- Organizational costs relate to organizational activities surrounding the acquisitions of residences and are being amortized on the straight-line method over five years. Deposits -------- Deposits include cash paid in connection with possible acquisitions, deposits for certain equipment and utilities and cash paid in connection with the $11,500,000 indebtedness. Goodwill -------- Goodwill is being amortized on the straight-line method over a period of fifteen years. Deferred Financing Costs ------------------------ Deferred financing costs are being amortized over the terms of the related borrowings under a method which approximates the effective interest method. Covenant Not to Compete ----------------------- Covenant not to compete is being amortized over a period of five years under the straight-line method. Other Deferred Financing and Acquisition Costs ---------------------------------------------- Other deferred financing and acquisition costs includes costs incurred for a proposed capital financing and costs incurred for the acquisition of additional residences which were not closed at December 31, 1995. Estimates --------- The preparation of the 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 as of December 31, 1995 and the reported amounts of revenues and expenses during each of the two years then ended. Actual results could differ from those estimates. Disclosures About Fair Value of Financial Instruments ----------------------------------------------------- The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments. Management estimates that the carrying value of long-term indebtedness (Note B) approximates fair value at December 31, 1995. F-45 American Care Communities, Inc. and Subsidiaries NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Interim Statements ------------------ In the opinion of management, the unaudited interim financial statements as of September 30, 1996 and for the nine-month periods ended September 30, 1995 and 1996 include all adjustments, consisting only of those of a normal recurring nature, necessary to present fairly the Company's financial position as of September 30, 1996 and the results of its operations and cash flows for the nine-month periods ended September 30, 1995 and 1996. The results of operations for the nine months ended September 30, 1996 are not necessarily indicative of the results to be expected for the full year. NOTE B - LONG-TERM DEBT Long-term debt at December 31, 1995 is summarized as follows: Prime (8.5% at December 31, 1995) plus .5% to 1% notes payable in monthly installments of interest only, with final payments in February 1996 through July 1996 $ 144,421 Prime (8.5% at December 31, 1995) plus .5% to. 75% notes payable in aggregate monthly installments of $36,906 including interest with final installments due March 1997 through December 1998, collateralized by property and equipment 3,254,245 8.99% to 10% notes payable in aggregate monthly installments of $6,802 including interest, with final installments due March 1996 through February 2000, collateralized by property and equipment 451,484 6.23% to 9.25% notes payable in monthly installments of interest only, with final installments due in 1996 1,551,480 11.35% mortgage loan payable in monthly installments of interest only through January 1997 with a final balloon payment in 2007, collateralized by property and equipment 11,500,000 ----------- 16,901,630 Less current maturities 817,925 ----------- $16,083,705 ===========
F-46 American Care Communities, Inc. and Subsidiaries NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED NOTE B - LONG-TERM DEBT - CONTINUED Subsequent to December 31, 1995, the Company refinanced a $1,051,480 note payable that was due in 1996, with a $5,065,000 construction note payable in monthly installments of interest only with a final payment of interest and principal on April 16, 1997. The proceeds of the note are to be used for construction of Rose Manor of Cary. The note is collateralized by property and equipment and is guaranteed by certain stockholders of the Company. Aggregate annual principal maturities of long-term debt at December 31, 1995 are as follows: 1996 $ 817,925 1997 1,367,197 1998 1,704,815 1999 286,472 2000 1,753,298 Thereafter 10,971,923 ----------- $16,901,630 ===========
The loan agreements contain various restrictive covenants, including the requirement the Company submit audited financial statements within a certain period of time. The Company was not in compliance with one of these covenants at December 31, 1995, which was subsequently waived by the lender. Approximately $5,001,072 of the long-term indebtedness at December 31, 1995 is guaranteed by certain stockholders of the Company. NOTE C - OPERATING LEASES The Company leases three residences and office space from unrelated parties and five residences from a related party (Note D) under operating lease agreements which expire from July 1997 through January 2010 and has various other equipment operating leases. The Company has the option to extend the residence leases for various five year periods. Rental expense under these lease agreements was $406,101 and $212,100 in 1995 and 1994, respectively. In accordance with the residence and office space lease agreements, the Company is responsible for operating and maintaining the buildings in good order, repair and operating condition, and promptly make all repairs, renewals, replacements, additions and improvements necessary to maintain the current condition of the residence. F-47 American Care Communities, Inc. and Subsidiaries NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED NOTE C - OPERATING LEASES - CONTINUED Future minimum rental payments are summarized as follows: 1996 $2,299,888 1997 2,423,795 1998 2,392,851 1999 2,100,220 2000 2,067,678
NOTE D - EQUITY INVESTMENT Prior to December 27, 1995, the Company had a 30% non-controlling interest in Rhoades/Powell, Inc. and 30% non-controlling interest in Powell/Rhoades, LLC. Powell/Rhoades, LLC owns five residences located in North Carolina. These residences are leased to Rhoades/Powell, Inc. under a fifteen year operating lease agreement (Note C). The Company has recorded equity earnings (loss) from these investments of $148,497 and $(58,134), respectively, for the year ended December 31, 1995 in the accompanying financial statements. Unaudited financial information for Rhoades/Powell, Inc. and Powell/Rhoades, LLC for the 361 days ended December 27, 1995 is as follows:
Rhoades/ Powell/ Powell, Inc. Rhoades, LLC ------------ ------------- Revenues $4,056,105 $1,139,968 Expenses 3,561,115 1,333,749 ---------- ---------- Net income (loss) $ 494,990 $ (193,781) ========== ==========
On December 27, 1995, the Company sold its 30% interest in Powell/Rhoades, LLC incurring a loss on disposal of $39,458 and purchased the remaining 70% interest in Rhoades/Powell, Inc. F-48 American Care Communities, Inc. and Subsidiaries NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED NOTE E - INCOME TAXES The Company accounts for income taxes under the provisions of statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). Under SFAS No. 109, deferred income taxes are determined based on temporary differences between the financial statement and tax basis of assets and liabilities, using enacted tax rates expected to be in effect during the years in which the differences are expected to reverse, and on available tax credits and carryforwards. During 1995, the Company incurred a net loss of $524,778, thus, no provision for income taxes is included in the accompanying financial statements. At December 31, 1995, the Company had a net deferred tax asset of $194,000, consisting of the following significant components: Deferred tax asset: Net operating losses $213,000 Bad debt deduction disallowance 12,500 Tax depreciation (45,000) Other 13,500 -------- $194,000 ========
The Company has placed a full valuation allowance on the deferred tax asset since it is more likely than not that the future tax benefit will not be realized due to the historical losses from operations and going concern considerations (Note J). NOTE F - TRANSACTIONS WITH RELATED PARTIES At December 31, 1995, the Company owed one of its stockholders a total of $357,974 in non-secured notes payable at annual interest rates of 8%. These notes are due the earlier of August 15, 1997 or the closing of a private equity placement and have been classified as long-term liabilities in the accompanying balance sheet. Included in accrued interest in the accompanying financial statements is $29,216 and $11,067 in 1995 and 1994, respectively, related to these notes. Also, included in interest expense is $18,149 and $7,200 in 1995 and 1994, respectively, related to these notes. Included in accounts payable, trade at December 31, 1995 is $7,660 due to two stockholders of the Company for expenses incurred on behalf of the Company. Accounts receivable, stockholder represents a non-interest-bearing advance, due on demand to one of the stockholders of the Company. F-49 American Care Communities, Inc. and Subsidiaries NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED NOTE G - MANAGEMENT CONTRACT During 1995, the Company managed an assisted living residence under contractual agreement. Under the terms of the agreement, the Company was responsible for supervising the operations of the residence, maintaining appropriate accounting records and compliance with all pertinent requirements of contractual agreements. Included in other revenues in the accompanying financial statements is revenue of $17,500 related to this contract. The contract expires in December 1999. NOTE H - PROFESSIONAL LIABILITY INSURANCE The Company is insured under occurrence-based policies for the purpose of providing professional liability insurance. These policies cover only claims occurred during the policy term. Coverage includes policies on professional liability limited to $1,000,000 per occurrence at each residence and aggregate coverage of $2,000,000 to $3,000,000 per residence. One residence located in Florida is insured under a claims-made policy for the purpose of providing professional liability insurance. This policy covers only claims reported to the insurance carrier during the policy term. Coverage under this policy includes professional liability limited to $1,000,000 per occurrence and aggregate coverage of $1,000,000. NOTE I - COMMITMENTS The Company is currently constructing Rose Manor of Cary, Inc., a 72-bed assisted living residence located in Cary, North Carolina. Construction is scheduled to be completed in September 1996 at a cost of approximately $5,000,000. NOTE J - GOING CONCERN At December 31, 1995, the Company had a stockholders' deficit of $832,686 and current liabilities were greater than current assets in the amount of $1,352,387. In addition, the Company has incurred net losses of $524,778 and $245,891 for the years ended December 31, 1995 and 1994, respectively, caused, in part, by the Company's rapid growth. Management is currently evaluating different financing options including the restructuring of current debt agreements and capital investment from outside parties through which it believes the Company can continue its growth. Should management be unable to execute such an arrangement or reduce its operating expenses in line with its revenues it would raise substantial doubt about the Company's ability to continue as a going concern. F-50 American Care Communities, Inc. and Subsidiaries NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED NOTE K - SUBSEQUENT EVENTS (UNAUDITED) Acquisitions ------------ Effective January 1, 1996, the following entities were acquired as wholly-owned subsidiaries of American Care Communities, Inc.: Berne Village, Inc. (formerly Berne Village, LLC) Graybrier, Inc. (formerly Graybrier, LLC) Rose Terrace of Wendell, Inc. (formerly Rose Terrace of Wendell, LLC) Lake James, Inc. (formerly Lake James Acquisition, LLC) Rose Tara Plantation, Inc. RRSP, Inc. Commitments ----------- The Company has entered into a contractual commitment for the purchase of a 55- bed residence located in South Carolina for $2,250,000. Disposal of Residence --------------------- On August 1, 1996, the Company sold the assets of Lake James, Inc. for $1,575,000. Approximately $175,000 of the proceeds were used for working capital and closing costs and the remaining $1,400,000 has been escrowed for capital improvements at Berne Village, Inc., Graybrier, Inc. and Rose Tara Plantation, Inc. Stock Options ------------- Effective March 6, 1996, the Company adopted an incentive stock option plan under Section 422 of the Internal Revenue Code. The plan reserves 50 shares of common stock for the benefit of key employees. At May 29, 1996, 39 shares had been granted, none of which had been exercised. Options under this plan are exercisable at no less than fair market value at the date of grant and vest ratably over a three-year period. All unexercised options expire three years from the date of grant. 401(k) Plan ----------- Effective January 1, 1996, the Company adopted the American Care Communities 401(k) Plan (the "Plan") which requires contributions each year from the Company equal to 50% of the first 6% of the participants annual contribution to the Plan. Any additional Company contribution to the Plan is at the discretion of the Company's Board of Directors. The company may terminate the Plan at any time. Upon termination, participants would become fully vested in all Company contributions and Plan earnings. F-51 American Care Communities, Inc. and Subsidiaries NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED NOTE K - SUBSEQUENT EVENTS (UNAUDITED) - CONTINUED Proposed Merger --------------- On September 16, 1996, the Company began merger discussions with Greenbriar Corporation ("Greenbriar") and entered into an Agreement and Plan of Merger on November 21, 1996. Pursuant to the Agreement, the Company will be merged with and into a wholly-owned subsidiary of Greenbriar in exchange for 1,300,000 shares of Greenbriar's common stock at an agreed value of $16 per share. The closing of the merger is subject to shareholder approval and is expected to occur on December 30, 1996. In connection with the proposed merger, in September 1996, the Company wrote- off $400,809 of deferred financing costs associated with previously proposed capital financings for the Company, of which $292,502 was included in other deferred financing and acquisition costs at December 31, 1995. F-52 -----END PRIVACY-ENHANCED MESSAGE-----