-----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, SwEamcR47qObzEmqeZgbj9Ef3xid5ObntkwWqpUGQNUAmjrxo2LKSzDlEsjtC6kL NRsibz+SKpM9/e+3KJ13jw== /in/edgar/work/0001104659-00-000769/0001104659-00-000769.txt : 20001115 0001104659-00-000769.hdr.sgml : 20001115 ACCESSION NUMBER: 0001104659-00-000769 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREENBRIAR CORP CENTRAL INDEX KEY: 0000105744 STANDARD INDUSTRIAL CLASSIFICATION: [8051 ] IRS NUMBER: 752399477 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08187 FILM NUMBER: 767904 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 10-Q 1 0001.txt QUARTERLY REPORT 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 SEPTEMBER 30, 2000 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.) 4265 KELLWAY CIRCLE, ADDISON, TEXAS 75001 (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 November 11, 2000, the issuer had outstanding approximately 7,011,000 shares of par value $.01 Common Stock. 1 GREENBRIAR CORPORATION Index to Quarterly Report on Form 10-Q Period ended September 30, 2000 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.............................11 THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999.....12 EFFECT OF INFLATION......................................................16 FORWARD LOOKING STATEMENTS...............................................16 PART II: OTHER INFORMATION....................................................17 2 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS GREENBRIAR CORPORATION Consolidated Balance Sheets (AMOUNTS IN THOUSANDS)
September 30, December 31, 2000 1999 ------------- ------------- (Unaudited) ASSETS Current Assets Cash And Cash Equivalents $ 2,914 $ 8,814 Accounts Receivable-Trade 517 182 Other Current Assets 1,449 848 ------------- ------------- Total Current Assets 4,880 9,844 Deferred Income Tax Benefit 4,750 4,750 Mortgage Note Receivable, Net Of Deferred Gain Of $3,083 - 3,617 Property And Equipment, At Cost Land And Improvements 9,943 11,179 Buildings And Improvements 75,906 76,848 Equipment And Furnishings 6,542 6,586 ------------- ------------- 92,391 94,613 Less Accumulated Depreciation 11,683 9,888 ------------- ------------- 80,708 84,725 Deposits 3,834 3,907 Goodwill And Other Intangibles 9,848 10,439 Other Assets 703 2,626 ------------- ------------- $ 104,723 $ 119,908 ============= =============
3 GREENBRIAR CORPORATION Consolidated Balance Sheets - Continued (AMOUNTS IN THOUSANDS)
September 30, December 31, 2000 1999 ----------------- ---------------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current Maturities Of Long-Term Debt $ 2,529 $ 3,317 Accounts Payable - Trade 1,451 2,072 Accrued Expenses 875 1,345 Other Current Liabilities 1,424 678 ------------- ------------- Total Current Liabilities 6,279 7,412 Long-Term Debt 50,096 50,477 Financing Obligations 10,815 10,815 Other Long Term Liabilities 1,060 721 ------------- ------------- Total Liabilities 68,250 69,425 Preferred Stock Redemption Obligation 26,262 27,763 Stockholders' Equity Preferred Stock 257 289 Common Stock $.01 Par Value; Authorized, 20,000 Shares; Issued And Outstanding, 7,514 Shares 76 76 Additional Paid-In Capital 61,055 61,520 Accumulated Deficit (48,810) (36,798) ------------- ------------- 12,578 25,087 Less Stock Purchase Notes Receivable (Including $2,250 From Related Parties) (2,367) (2,367) ------------- ------------- 10,211 22,720 ------------- ------------- $ 104,723 $ 119,908 ============= =============
4 Greenbriar Corporation Consolidated Statements Of Operations (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
For The Three Month For The Nine Month Period Ended Period Ended September 30, September 30, ----------------------------------- ----------------------------------- 2000 1999 2000 1999 ---------------- ----------------- ----------------- ---------------- (Unaudited) (Unaudited) Revenue Assisted living operations $ 10,263 $ 10,421 $ 31,104 $ 30,872 ----------- ---------- ---------- --------- 10,263 10,421 31,104 30,872 Operating Expenses Assisted living community operations $ 6,222 $ 6,317 $ 18,619 $ 18,612 Lease expense 1,217 1,297 3,759 3,877 Depreciation and amortization 903 1,002 2,846 3,028 Corporate general and administrative 1,067 1,093 3,244 3,350 Write-off of impaired assets and related expenses - - 7,461 - ----------- ---------- ---------- --------- 9,409 9,709 35,929 28,867 ----------- ---------- ---------- --------- Operating income (loss) 854 712 (4,825) 2,005 Other income (expense) Interest and dividend income $ 105 $ 184 $ 321 $ 497 Interest expense (1,454) (1,424) (4,264) (4,291) Gain (loss) on the sale of assets - (186) 74 (186) Other (76) (72) (216) 148 ----------- ---------- ---------- --------- (1,425) (1,498) (4,085) (3,832) ----------- ---------- ---------- --------- Net loss (571) (786) (8,910) (1,827) Preferred stock dividend requirement (1,028) (1,189) (3,103) (3,535) Loss allocable to common stockholders (1,599) (1,975) (12,013) (5,362) ----------- ---------- ---------- --------- Net loss per common share - basic and diluted $ (0.21) $ (0.27) $ (1.60) $ (.74) Weighted average number of common and equivalent shares outstanding 7,514 7,275 7,514 7,275
5 GREENBRIAR CORPORATION Consolidated Statements Of Cash Flow (AMOUNTS IN THOUSANDS)
For the nine month Period Ended September 30, 2000 1999 ---------------- ------------------ (Unaudited) (Unaudited) Cash flows from operating activities Net loss $ (8,910) $ (1,827) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 2,846 3,028 Loss (gain) on sales of assets (74) 186 Write-off of impaired assets and related expenses 7,461 - Changes in operating assets and liabilities Accounts receivable (335) 122 Other current and noncurrent assets (791) (253) Accounts payable and other liabilities (6) (2,503) ------------- --------------- Net cash provided by (used in) operating activities 191 (1,247) ------------- --------------- Cash flows used in investing activities Proceeds from sale of property 645 6,567 Purchase of property and equipment (1,068) (849) ------------- --------------- Net cash provided by (used in) investing activities (423) 5,718 Cash flows from financing activities Proceeds from borrowings - 2,080 Payments on debt (569) (6,978) Dividends on preferred stock (1,099) (1,227) Redemption of preferred stock (4,000) - ------------- --------------- Net cash used in financing activities (5,668) (6,125) ------------- --------------- NET DECREASE IN CASH AND (5,900) (1,654) CASH EQUIVALENTS Cash and cash equivalents at beginning of period 8,814 6,024 ------------- --------------- Cash and cash equivalents at end of period $ 2,914 $ 4,370 ============= ===============
6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE UNAUDITED THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 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 audited 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 and nine month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. 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, 1999. 7 NOTE B: LONG-TERM OBLIGATIONS Long-term debt is comprised of the following (in thousands):
September 30, December 31, 2000 1999 ------------- ------------ 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 $ 25,304 $ 25,681 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 4,488 4,572 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 5.55% at September 30, 2000; collateralized by personal property, land, fixtures and rents 7,005 7,110 Mortgage note payable to a financial institution maturing in 2003; bearing interest at 9.43%; collateralized by property and equipment 13,972 13,972 Other 1,856 2,459 ------------ ------------- 52,625 53,794 Less: current maturities 2,529 3,317 ------------ ------------- $ 50,096 $ 50,477
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):
September 30, December 31, 2000 1999 ------------- ------------ 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 140 140 Series G cumulative convertible preferred stock, $.10 par value; liquidation value of $4,800 at September 30, 2000; authorized, issued and outstanding, 480 shares at September 30, 2000 and 800 shares at December 31, 1999 48 80 ----------- ------------ $ 257 $ 289 =========== ============
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 voting preferred stock has a liquidation value of $10.00 per share and each share is convertible into .57 shares of common stock. The Series F Shareholders have the rights, as a class, to elect one member of the Company's board of directors and to approve or reject certain transactions, including any mergers or spin-offs involving the Company. The holder has the option to convert beginning in January 2000 and must convert by January 2001. Dividends are payable in cash at a rate of 6%. The Series G preferred stock has a liquidation value of $10.00 per share and each share is convertible into .57 shares of common stock. The holder has the option to convert beginning in January 2000 and must convert by January 2001. Dividends are payable in cash at a rate of 6%. 9 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 $716,000. 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 stockholders equal to the market price deficiency on the shares received upon conversion. See NOTE E, SUBSEQUENT EVENT and ITEM 2, LIQUIDITY AND CAPITAL RESOURCES for additional information regarding Series F and G preferred shareholders. NOTE D: WRITE-OFF OF IMPAIRED ASSETS AND RELATED EXPENSES At June 30, 2000 the Company recorded a write-off of impaired assets and related expenses of $7,461,000. In 1992 the Company sold four nursing homes to Southern Care Corporation and a subsidiary of the Company entered into a management agreement to manage the nursing homes. In 1994 Southern Care terminated the management agreement and informed the Company that they believed the notes due to the Company from the sale of the nursing homes in 1992 were invalid. The matter has been in the courts since 1995 and legal issues were resolved in June 2000 when Greenbriar was awarded a judgment of $18,688,000 for the notes, interest, amounts due for the management contract and reimbursement of legal fees. The assets had a recorded value of $4,525,000. The Company was informed that the financial condition of the four nursing homes had deteriorated, that they failed to make the mortgage payment, and that the first mortgage holder foreclosed on the property in June 2000. The Company is actively pursuing collection of its judgment from Southern Care as well as from its officers, directors and a third party trustee. However, under the circumstances the Company is writing off the entire $4,525,000. The Company decided to dispose of two assisted living communities, which are not meeting operating performance expectations. These communities were written down to net realizable value at June 30, 2000. One of these communities was disposed of in the quarter ending September 30, 2000 with no additional write-off required. Also, a third community whose operations have deteriorated was written down based on management's estimate of future cash flows pursuant to the provisions of Statement of Financial Accounting Standards No. 121. In addition certain receivables associated with these properties were written off. These write offs substantially account for the remainder of the write-off of impaired assets and related expenses. NOTE E: SUBSEQUENT EVENT The Company received a notice dated October 30, 2000, from the holder of all outstanding shares of Series F Senior Convertible Preferred Stock and Series G Senior Convertible Preferred Stock, 10 advising that such holder was 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 79.7% of the Company's common stock and represent a change in the control of the Company. 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 $27,000,000 to approximately $7,600,000. The Company believes that the conversion price was not properly subject to adjustment, and, if the holder were to convert, it would be at the current $17.50 conversion price. 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 recission of the employee stock options that were the basis for the holder's purported adjustment. The holder has 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 intends to defend such action and seek a contrary ruling that the conversion price was not adjusted. The parties are engaged in negotiations in an attempt to resolve the matter amicably. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW During 1994 the Company began a series of steps to focus its business on the development, management and ownership of assisted living communities. The Company's historical businesses during the past five years have included ownership and operation of skilled nursing and retirement centers, real estate investments and manufacture and leasing of electric convenience vehicles and wheelchairs. The nursing and retirement centers and convenience 11 vehicle businesses have been sold and the real estate investments have been liquidated. The Company began to develop its assisted living business in 1994, began construction of its first assisted living community in July 1995, and opened that community to residents on May 30, 1996. In order to increase the Company's presence in the assisted living industry, create geographic diversity and obtain experienced personnel the Company acquired Wedgwood Retirement Inns, Inc. (Wedgwood) in March 1996, American Care Communities, Inc. (American Care) in December 1996, Windsor Group LLC (Windsor) in October 1997 and Villa Residential Care Homes, Inc. (Villa) in December 1997. At December 31, 1997 the Company operated 55 communities that were owned, leased or managed for third parties. During the third quarter of 1998 the Company made several strategic decisions as to its future direction. It was decided that the Company redirect itself with the following objectives: o Terminate existing management contracts under which the Company managed communities for a fee. As of January 1, 1998 the company had two such contracts. o Reduce the percentage of residents in the Company's communities who were dependent on direct assistance from governmental agencies for payment of their fees. As of January 1, 1998 approximately 50% of the residents at the Company's communities received government assistance. o Move toward direct ownership of the communities operated by the Company as opposed to long-term lease arrangements. As of January 1, 1998 approximately 50% of the Company's communities were operated under long-term lease arrangements. o Divestiture of communities with limited future profit potential or geographic locations that were isolated from other Company operations. As of September 30, 2000 the Company had terminated its management contracts to manage for others and reduced to 28 the number of communities that it operated. In 1999 the Company disposed of two communities. In the first quarter of 2000 the Company did not renew a lease on a third community and in the third quarter of 2000 transferred a lease on another community to a third party. The Company owns or has current options to purchase all but five of its communities. The percentage of residents who are private pay is approximately 90%. THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999. REVENUES AND OPERATING EXPENSES FROM ASSISTED LIVING OPERATIONS Revenues were $10,263,000 and $31,104,000 for the three and nine months ended September 30, 2000 as compared to $10,421,000 and $30,872,000 for the three and nine months ended September 30, 1999. Community operating expenses, which consist of assisted living community expenses, lease expense and depreciation and amortization, were $8,342,000 and $25,224,000 for the three and nine months ended September 30, 2000 as compared to $8,616,000 and $25,517,000 for the three and nine months ended September 30, 1999. The Company has four less communities in the third quarter of 2000 than it did the same period of 1999, which 12 attributes to the decrease in the current period revenue and expenses. The revenue and community operating expenses for the three month period ended September 30, 1999 without the four communities would have been $9,891,000 and $8,158,000 respectively. The increase in the same community revenue and operating expenses for the three month period ended September 30, 2000 as well as the increase in revenue for the nine months ended September 30, 2000 is due to an increase in both census and average rental rates at the remaining twenty-eight communities. While the revenue has increased at the remaining twenty-eight communities, the diligent effort to control expenses has resulted in a slight decrease in operating costs for the nine month period ended September 30, 2000 compared with the same period in 1999. WRITE-OFF OF IMPAIRED ASSETS AND RELATED EXPENSES For the nine months ended September 30, 2000 the Company recorded a write-off of impaired assets and related expenses of $7,461,000. In 1992 the Company sold four nursing homes to Southern Care Corporation and a subsidiary of the Company entered into a management agreement to manage the nursing homes. In 1994 Southern Care terminated the management agreement and informed the Company that they believed the notes due to the Company from the sale of the nursing homes in 1992 were invalid. The matter has been in the courts since 1995 and legal issues were resolved in June 2000 when Greenbriar was awarded a judgment of $18,688,000 for the notes, interest, amounts due for the management contract and reimbursement of legal fees. The assets had a recorded value of $4,525,000. The Company was informed that the financial condition of the four nursing homes had deteriorated, that they failed to make the mortgage payment, and that the first mortgage holder foreclosed on the property in June 2000. The Company is actively pursuing collection of its judgment from Southern Care as well as from its officers, directors and a third party trustee. However, under the circumstances the Company is writing off the entire $4,525,000. The Company decided to dispose of two assisted living communities, which are not meeting operating performance expectations. These communities were written down to net realizable value at June 30, 2000. One of these communities was disposed of in the quarter ending September 30, 2000 with no additional write-off required. Also, a third community whose operations have deteriorated was written down based on management's estimate of future cash flows pursuant to the provisions of Statement of Financial Accounting Standards No. 121. In addition certain receivables associated with these properties were written off. These write offs substantially account for the remainder of the write-off of impaired assets and related expenses. INTEREST AND DIVIDEND INCOME Interest and dividend income for the three and nine months ended September 30, 2000 was $105,000 and $321,000 compared to $184,000 and $497,000 for the comparable periods in 1999. In the fourth quarter of 1999 the Company disposed of a preferred stock investment in another company that generated quarterly dividends in 1999. The decrease in interest and dividend 13 income in 2000 is due to the absence of the dividend income from the preferred stock investment and less cash available for investment purposes. INTEREST EXPENSE Interest expense for the three and nine months ended September 30, 2000 was $1,454,000 and $4,264,000 compared to $1,424,000 and $4,291,000 for the comparable period in 1999. The decrease in interest expense for the nine month period ended September 30, 2000 compared to the nine month period ended September 30, 1999 is reflective of the sale of two owned communities in 1999. GAIN ON THE SALE OF ASSETS The gain on the sale of assets for the nine months ended September 30, 2000 was $74,000. The gain in the nine-month period ended September 30, 2000 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 and nine months ended September 30, 2000, was ($76,000) and ($216,000) compared to ($72,000) and $148,000 for the same periods in 1999. The expense for the three and nine months ended September 30, 2000 is attributable to a minority interest. The expense for the three months ended September 30, 1999 relates to this same minority interest. The income for the nine months ended September 30, 1999 is a result of a favorable settlement with a former employee regarding an employment agreement that was accrued in 1998. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000, the Company had a working capital deficit of $1,399,000 In December 1997 the Company sold Series F and Series G preferred shares for $22,000,000 less selling and offering costs of $716,000. 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 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 stockholders equal to the market price deficiency on the shares received upon conversion. The 14% guaranteed return is being 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 September 30, 2000, a Cash Payment of $26,262,000 would have been due assuming conversion took place. 14 In 2000 the Company made payments totaling $4,000,000 to redeem a portion of the preferred stock. In conjunction with the $4,000,000 payment noted above, Greenbriar and the preferred stockholders have an agreement whereby Greenbriar would redeem the Series F and G preferred stock from proceeds generated from the sale or refinancing of certain assets. The original agreement provides the Series F and G preferred stockholders the option to convert beginning January 2000 and mandatory conversion at January 13, 2001. The Company is proceeding with a plan to refinance its existing portfolio of communities. At current interest rates and property values the Company believes it can refinance its existing communities and, if necessary, also sell certain Communities and obtain sufficient cash to meet the potential Cash Payment. In addition the Company will seek out additional third party financing. While the Company believes it will be able to meet any potential Cash Payment requirement there can be no assurance that the Company's plan will be successful. At September 30, 2000 and since the date of issuance of the Series F and G preferred stock, the Company was not in compliance with one of the financial ratio covenants of the stock purchase agreement. The Company believes this situation stems from a computational mistake that was made at the time this particular ratio test was originally determined. The Company has brought this mistake to the attention of the representative of the preferred shareholder. The representatives have not indicated to the Company that they consider that a default has occurred. However, an event of default (1) gives the holder, upon giving the Company written notice of an event of default, the right (Put Right) to require the Company to repurchase, "out of funds legally available therefor," any or all of the preferred stock for an amount equal to the liquidation value ($18,957,000 in the aggregate) plus accumulated but unpaid dividends, plus a premium of 20%, and (2) entitles the holder to additional dividends of $1.20 per share (an aggregate of $660,000 per quarter). Any additional dividends paid pursuant to this provision would reduce the amount of the Cash Payment resulting from the aforementioned 14% guaranteed return. 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 future development activities. See NOTE E for additional information regarding Series F and G preferred shareholders. EFFECT OF INFLATION The Company's principal sources of revenues are from resident fees from Company-owned or leased assisted living communities and management fees from communities operated by the Company for third parties. The operation of the communities is affected by rental rates that are highly dependent upon market conditions and the competitive environment in the areas where the 15 communities are located. Compensation to employees is the principal cost element relative to the operations of the communities. 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. 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 form 10Q 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. 16 PART II: OTHER INFORMATION ITEMS 1-5: ARE NOT APPLICABLE. - ------------------------------------ 17 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 11, 2000 By: /S/ GENE S. BERTCHER ---------------------------- Executive Vice President Chief Financial Officer 18 EX-27 2 0002.txt FDS -- FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Form 10-Q unaudited consolidated balance sheet as of September 30, 2000 and the unaudited consolidated statement of earnings for the nine month period ended September 30, 2000 and is qualified in its entirety by reference to such financial statements. (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 0000105744 Greenbriar Corporation 9-mos Dec-31-2000 Jan-01-2000 Sep-30-2000 2,914 0 517 0 0 4,880 92,391 11,683 104,723 6,279 50,096 0 257 76 9,878 104,723 0 31,104 0 18,619 0 0 4,264 (8,910) 0 0 0 0 0 (8,910) (1.60) 0
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