10QSB 1 green10q033101.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-8187 Greenbriar Corporation (Exact name of Registrant as specified in its charter) Nevada 75-2399477 (State or other jurisdiction of (IRS Employer Incorporation or organization) Identification No.) 14185 Dallas Parkway, Suite 650, Dallas, Texas 75240 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 407-8400 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- Common Stock, $.01 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark 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 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] At May 14, 2001, the issuer had outstanding approximately 8,320,000 shares of par value $.01 Common Stock. GREENBRIAR CORPORATION Index to Quarterly Report on Form 10-Q Period ended March 31, 2001 Part I: Financial Information..................................................3 ITEM 1: FINANCIAL STATEMENTS................................................3 Consolidated Balance Sheets...............................................3 Consolidated Statements Of Operations.....................................5 Consolidated Statements Of Cash Flow......................................6 Notes To Consolidated Financial Statements................................7 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................10 Three month period ended March 31, 2001 compared to three month period ended March 31, 2000.....................................................10 Forward Looking Statements...............................................13 Part II: Other Information....................................................14 2 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS ---------------------------- Greenbriar Corporation Consolidated Balance Sheets (Amounts in thousands) March 31, December 31, Assets 2001 2000 (Unaudited) Current Assets Cash And Cash Equivalents $ 3,537 $ 2,287 Accounts Receivable-Trade 315 470 Other Current Assets 1,416 1,105 ---------- ----------- Total Current Assets 5,268 3,862 Deferred Income Tax Benefit 4,750 4,750 Property And Equipment, At Cost Land And Improvements 9,308 9,716 Buildings And Improvements 73,428 75,723 Equipment And Furnishings 6,300 6,615 ---------- ----------- 89,036 92,054 Less Accumulated Depreciation 12,416 12,410 ---------- ----------- 76,620 79,644 Deposits 3,720 3,834 Goodwill And Other Intangibles 9,251 9,347 Other Assets 1,150 1,151 ---------- ----------- $ 100,759 $ 102,588 ========== =========== 3
Greenbriar Corporation Consolidated Balance Sheets - Continued (Amounts in thousands) March 31, December 31, Liabilities And Stockholders' Equity 2001 2000 (Unaudited) Current Liabilities Current Maturities Of Long-Term Debt $ 2,413 $ 2,538 Accounts Payable - Trade 528 1,445 Accrued Expenses 1,198 1,934 Other Current Liabilities 904 668 ------------- ------------- Total Current Liabilities 5,043 6,585 Long-Term Debt 50,880 50,887 Financing Obligations 10,815 10,815 Other Long Term Liabilities 733 657 ------------- ------------- Total Liabilities 67,471 68,944 Preferred Stock Redemption Obligation 27,167 26,988 Stockholders' Equity Preferred Stock 69 254 Common Stock $.01 Par Value; Authorized, 100,000 Shares; Issued And Outstanding, 8,348 Shares 84 76 And 7,514 Shares, Respectively Additional Paid-In Capital 60,215 60,219 Accumulated Deficit (51,880) (51,526) ------------- ------------- 8,488 9,023 Less Stock Purchase Notes Receivable (Including $2,250 From Related Parties) (2,367) (2,367) ------------- ------------- 6,121 6,656 ------------- ------------- $ 100,759 $ 102,588 ============= =============
4 Greenbriar Corporation Consolidated Statements Of Operations (Amounts in thousands, except per share data) For The Three Month Period Ended March 31, 2001 2000 ---------- ---------- (Unaudited) Revenue Assisted living operations $ 9,976 $ 10,522 ---------- ---------- 9,976 10,522 Operating expenses Assisted living community operations $ 6,004 $ 6,256 Lease expense 1,154 1,288 Depreciation and amortization 865 979 Corporate, general and administrative 1,184 1,112 ---------- ---------- 9,207 9,635 ---------- ---------- Operating income 769 887 Other income (expense) Interest income $ 77 $ 115 Interest expense (1,422) (1,391) Net gain on the sale of assets 381 108 Other (81) (68) ---------- ---------- (1,045) (1,236) ---------- ---------- Loss before income taxes (276) (349) Income tax benefit -- -- ---------- ---------- Net loss (276) (349) Preferred stock dividend requirement (80) (1,047) Loss allocable to common stockholders (356) (1,396) ========== ========== Net loss per common share - basic and diluted $ (0.04) $ (0.19) Weighted average number of common and equivalent shares outstanding 8,348 7,514 5
Greenbriar Corporation Consolidated Statements Of Cash Flow (Amounts in thousands) For the three month Period Ended March 31, 2001 2000 ---------- ---------- (Unaudited) (Unaudited) Cash flows from operating activities Net loss $ (276) $ (349) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 865 979 Gain on sale of assets (381) (108) Changes in operating assets and liabilities Accounts receivable 155 (122) Other current and noncurrent assets (236) (413) Accounts payable and other liabilities (1,341) (1,332) ---------- ---------- Net cash used in operating activities (1,214) (1,345) ---------- ---------- Cash flows provided by (used in) investing activities Proceeds from sale of property 2,767 341 Purchase of property and equipment (91) (416) ---------- ---------- Net cash provided by (used in) investing activities 2,676 (75) Cash flows from financing activities Payments on debt (132) (199) Dividends on preferred stock (80) (371) Redemption of preferred stock -- (3,500) ---------- ---------- Net cash used in financing activities (212) (4,070) ---------- ---------- NET INCREASE (DECREASE) IN CASH AND 1,250 (5,490) CASH EQUIVALENTS Cash and cash equivalents at beginning of period 2,287 8,814 ---------- ---------- Cash and cash equivalents at end of period $ 3,537 $ 3,324 ========== ==========
6 Notes To Consolidated Financial Statements For the Unaudited Three Months Ended March 31, 2001 and 2000 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-Q and, accordingly, do not include all of the information and footnotes required by generally accepted accounting principles. 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 three-month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 7
Note B: Long-Term Obligations Long-term debt is comprised of the following (in thousands): March 31, December 31, 2001 2000 ---- ---- Notes payable to financial institutions maturing through 2018; fixed and variable interest rates ranging from 7.5% to 11.75%; collateralized by property, fixtures, equipment and the assignment of rents $ 27,892 $ 27,991 Notes payable to individuals and companies maturing through 2022; variable and fixed interest rates ranging from 7% to 12% collateralized by real property, personal property, fixtures, equipment and the assignment of rents 4,466 4,477 Note payable to the Redevelopment Agency of the City of Corona, California, payable into a sinking fund semi-annually in increasing amounts from $65 to $420 through May 1, 2015; variable interest rate of 5.50% at March 31, 2001; collateralized by personal property, land, fixtures and rents 6,895 6,895 Mortgage note payable to a financial institution maturing in 2003; bearing interest at 7.85%; collateralized by property and equipment 13,972 13,972 Other 68 90 ------------ ------------ 53,293 53,425 Less: current maturities 2,413 2,538 ------------ ------------ $ 50,880 $ 50,887
The Company operates two communities that are financed through sale-leaseback obligations. At the end of the tenth year of the fifteen-year leases (March 31, 2004), the Company has options to repurchase the communities for the greater of the sales prices or their current replacement costs less depreciation plus land at current fair market values. Accordingly, these transactions have been accounted for as financings, and the Company has recorded the proceeds from the sales as financing obligations, classified the lease payments as interest expense and continues to carry the communities and record depreciation. 8
Note C: Preferred Stock The following summarizes the various classes of preferred stock (amounts in thousands except per share data): March 31, December 31, 2001 2000 ---- ---- Series B cumulative convertible preferred stock, $.10 par value; liquidation value of $100; authorized, 100 shares; issued and outstanding, 1 share $ 1 $ 1 Series D cumulative convertible preferred stock, $.10 par value; liquidation value of $3,375; authorized, issued and outstanding, 675 shares 68 68 Series F voting cumulative convertible preferred stock, $.10 par value; liquidation value of $14,000; authorized, issued and outstanding, 1,400 shares -- 140 Series G cumulative convertible preferred stock, $.10 par value; liquidation value of $4,450; authorized, 800 shares; issued and outstanding, 445 shares -- 45 ------------- ------------- $ 69 $ 254 ============= =============
The Series B preferred stock has a liquidation value of $100 per share and is convertible into common stock over a ten-year period at prices escalating from $25.00 per share in 1993 to $55.55 per share by 2001. Dividends, at a rate of 6%, are payable in cash or preferred shares at the option of the Company. The Series D preferred stock has a liquidation value of $5 per share and is convertible into common stock at $10.00 per share. Cumulative dividends are payable in cash at a rate of 9.5%. The Series F and Series G preferred shares were sold to one investor in December 1997, for $22,000,000, less selling and offering costs of $453,000. In connection with the sale, the Company entered into an agreement which provides that, on the date of conversion, if the value of the Company's common stock has not increased at an annual rate of at least 14% during the period the preferred shares are outstanding, the Company is required to make a Cash Payment to the preferred stockholder equal to the market price deficiency on the shares received upon conversion. The Series F and G preferred stock had a liquidation value of $10.00 per share and each share was convertible into .57 shares of common stock. On January 13, 2001 the preferred F and G shares were converted into 1,054,202 shares of common stock. See further discussion of January 13, 2001 conversion and related dispute with preferred shareholder at Item 2, Liquidity and Capital Resources. 9 Note D: Dispositions In January 2001, the Company sold its corporate office building in Addison, Texas and received net cash proceeds of $1,477,772. The Corporate office has been relocated to approximately 10,000 square feet of leased space in Addison, Texas. In addition, the Company also sold certain garden homes and related property that were adjacent to Camelot Retirement in January 2001 and received net cash proceeds of $866,280. These two transactions resulted in a combined $381,000 gain on the sale of assets. Note E: Subsequent Event In April 2001 the Company exercised purchase options on two of it's leased Fort Worth, Texas communities, Palm House and Oak Park, and simultaneously sold both of the two communities to unrelated third parties. Per the terms of the sale of Oak Park, the Company retained a fifteen-year management agreement with the new owners. The gross proceeds from the sales of Palm House and Oak Park including both cash and bonds were $5,200,000 and $15,280,750 respectively. Approximately $4,450,000 of the cash proceeds generated from the sales of the two communities were used to payoff the mortgage on a retirement community owned by the Company in Harlingen, Texas, Camelot Retirement. This mortgage payoff was a requirement for the exercise of the purchase options on Palm House and Oak Park. The net cash proceeds generated from these two transactions following the payoff of Camelot were $496,000. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ------------------------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- Overview The Company owns and manages assisted living communities that provide housing, healthcare, hospitality and personal services to seniors. As of May 14, 2001 the Company operates 27 communities in 10 states with a capacity of 2,069 residents, including 1 community managed for a third party. Three-month period ended March 31, 2001 compared to three-month period ended March 31, 2000. Revenues and Operating Expenses from Assisted Living Operations Revenues were $9,976,000 for the three months ended March 31, 2001 as compared to $10,522,000 for the three months ended March 31, 2000. Community operating expenses, which consist of assisted living community expenses, lease expense and depreciation and amortization, were $8,023,000 for the three months ended March 31, 2001 as compared to $8,523,000 for the three months ended March 31, 2000. There were two communities disposed of in 2000, and certain garden homes and related property that was adjacent to Camelot Retirement were sold in 2001. The revenue and operating expenses from these communities that were included in the March 31,2000 operating results were $619,000 and $669,000 respectively. 10 Corporate General and Administrative Expenses General and administrative expenses were $1,184,000 for the three months ended March 31, 2001 compared to $1,112,000 for the three months ended March 31, 2000. The increase in the corporate general and administrative expenses is primarily a result of the increase in corporate legal expenses associated with the ongoing litigation with LSOF. See further discussion of litigation with LSOF at Liquidity and Capital Resources. Net gain on the Sale of Assets The net gain on the sale of assets for the three months ended March 31, 2001 was $381,000. The gain is attributable to the sale of Company's corporate office building which resulted in a gain of $406,000 and the sale of certain garden homes and related property that was adjacent to Camelot Retirement that resulted in a loss of $25,000. The 2000 gain is attributable to the sale of undeveloped land that did not fit into the Company's strategic plans. Other Income (Expense) Other income (expense) for the three months ended March 31, 2001, was ($81,000) compared to $(68,000) for the same period in 2000. The expense for both periods is attributable to a minority interest. Liquidity and Capital Resources At March 31, 2001, the Company had net working capital of $225,000. In April 2001 the Company exercised purchase options on two of it's leased Fort Worth, Texas communities and simultaneously sold both of the two communities to unrelated third parties. After exercise of the purchase options and the payoff of approximately $4,450,000 of debt on a third community, the Company generated $496,000 of cash proceeds. See Note E: Subsequent Event for additional discussion of these transactions. In December 1997 the Company sold Series F and Series G convertible preferred shares for $22,000,000 less selling and offering costs of $453,000. Payment was received on January 13, 1998. The preferred stockholders receive a cash dividend of 6% payable quarterly. The sale was to Lone Star Opportunity Fund, L.P. Subsequent to the initial transaction the preferred stock was sold or transferred to LSOF Pooled Equity L.P. ("LSOF"). In connection with the sale, the Company entered into an agreement which provides that, on the date of conversion, if the value of the Company's common stock has not increased at the annual rate of at least 14% during the period the preferred shares are outstanding, the Company is required to make a cash payment ("Cash Payment") to the preferred stockholder equal to the market price deficiency on the shares received upon conversion. The 14% guaranteed return has been accreted by a charge to accumulated deficit. The amount of the Cash Payment that would be required assuming conversion at each balance sheet date will be transferred from stockholders equity to temporary equity. At January 13, 2001, a Cash Payment of $27,167,000 would have been due assuming conversion took place on that date. 11 In January 2000 Greenbriar and LSOF entered into an agreement whereby Greenbriar would redeem the Series F & G preferred stock from proceeds generated from the sale or refinancing of certain assets ("the redemption agreement"). In connection with the redemption agreement the Company paid LSOF a total of $4,760,000 during 2000. The original agreement provides the Series F & G preferred stockholders the option to convert beginning January 13, 2000. The agreement further provides for a mandatory conversion on January 13, 2001. Greenbriar received a notice dated October 30, 2000, from LSOF advising that they were electing to convert the outstanding shares of preferred stock into common stock. Such notice sets forth the holder's position that, as a result of certain employee stock options issued by the Company, the conversion price of the Preferred Stock had been reduced from $17.50 per share to $0.69 per share, and that the Company must issue 27,502,855 shares of common stock upon conversion. If such shares were issued, they would constitute approximately 80% of the Company's common stock and represent a change in control of Greenbriar. The Company would be forced to obtain stockholder approval of the issuance of such a large block of common stock or face a delisting of its common stock on the American Stock Exchange. In the event such conversion occurred, the Company's obligation to pay the holder the "make-whole" distribution that is due upon a conversion or redemption of preferred stock would be reduced from approximately $27,167,000 to, based upon information provided by LSOF, approximately $8,600,000. The Company believes that the conversion price was not properly subject to adjustment, and, if the holder were to have converted, it would be at the $17.50 conversion price stated in the terms of the preferred stock agreement. The Company's position is based, in part, upon the holder's failure to follow all procedures for adjustment and conversion at the adjusted price, and on the Company's rescission of the employee stock options that were the basis for the holder's purported adjustment. LSOF filed a declaratory judgment action in the State District Court in Dallas County, Texas seeking a finding that it is entitled to a $0.69 conversion price. The Company filed specific denials and affirmative defenses and counterclaims in defense of such action, seeking, among other things, a contrary ruling that the conversion price was not adjusted. On January 13, 2001, the Company took the action mandated by the terms of the Series F and G Convertible Preferred Stock to convert the shares of Series F and G Convertible Preferred Stock remaining outstanding into 1,054,202 shares of common stock and acknowledged its obligation to pay the holder the approximate $27,167,000 Cash Payment amount as funds for repayment become lawfully available. On January 15, 2001, the Company received a notice dated January 12, 2001 from the former holder of the preferred stock to the effect that the Company was in default of the Preferred Stock Purchase Agreement for failing to provide a quarterly compliance certificate, failing to meet various financial covenants and failing to notify the holder of such defaults. LSOF contends that these alleged breaches of covenants triggered penalty dividends under the terms of the preferred stock and that Greenbriar's failure to pay those penalty dividends entitles the LSOF to appoint 70% of the Board of Directors. The Company disputes all such defaults and alternatively claims that such defaults have been waived, reformed or that LSOF is estopped from asserting them. The Company further disputes that any penalty dividends were due under the terms of the preferred stock agreement. 12 The State District Court ("the Court") has set July 23, 2001 as the trial date for this matter. On March 29, 2001, the Court considered a motion brought by LSOF seeking partial summary judgment on certain issues. On April 5, 2001, the judge in this case signed an order granting LSOF's motion as follows: o The correct conversion price of the Series F and Series G Preferred Stock was $0.69 per share based upon Greenbriar's issuance of $0.69 per share options. o LSOF's Conversion Notice complied with the requirement for conversion under the Certificates of Designation. o The conversion price remained $0.69 per share even if Greenbriar rescinded the $0.69 per share options after LSOF served its conversion notice based on $0.69 per share of Greenbriar common stock. This order will be a material factor at the trial on July 23, 2001. Although the preferred stock has been converted to common stock, the Company is still obligated to pay LSOF the Cash Payment amount. If Greenbriar ultimately prevails in its dispute with LSOF the amount owed is approximately $27,167,000. Greenbriar is continuing its plan to sell or refinance its existing assets to repay LSOF. Although there can be no assurance that the Company will be successful, at current interest rates and property values Greenbriar believes it can obtain sufficient cash to meet all its financial obligations including repaying LSOF. 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 Forward Looking Statements "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: A number of the matters and subject areas discussed in this filing that are not historical or current facts deal with potential future circumstances, operations, and prospects. The discussion of such matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and also may materially differ from Greenbriar Corporation's actual future experience involving any one or more of such matters and subject areas relating to interest rate fluctuations, ability to obtain adequate debt and equity financing, demand, pricing, competition, construction, licensing, permitting, construction delays on new developments contractual and licensure, and other delays on the disposition, transition, or restructuring of currently or previously owned, leased or managed communities in the Company's portfolio, and the ability of the Company to continue managing its costs and cash flow while maintaining high occupancy rates and market rate assisted living charges in its assisted living communities. Greenbriar Corporation has attempted to identify, in context, certain of the factors that they currently believe may cause actual future experience and results to differ from Greenbriar Corporation's current expectations regarding the relevant matter of subject area. These and other risks and uncertainties are detailed in the Company's reports filed with the Securities and Exchange Commission (SEC), including Greenbriar Corporation's Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. 13 PART II: OTHER INFORMATION ITEMS 1-6: ARE NOT APPLICABLE. --------------------------------- 14 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: May 14, 2001 By: /s/ Gene S. Bertcher -------------------------- Executive Vice President Chief Financial Officer 15