<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-KSB/A
(Amendment No. Four)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-8187
GREENBRIAR CORPORATION
(Formerly Medical Resource Companies of America)
(Name of Small Business Issuer in its charter)
Nevada 75-2399477
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4265 Kellway Circle, Addison, Texas 75244
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (214) 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
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were: $ 9,710,000
The aggregate market value of the voting stock held by non-affiliates of the
issuer, computed by reference to the closing sales price on March 26, 1996, was
approximately $14,200,000.
At March 26, 1996, the issuer had outstanding approximately 3,440,000 shares of
par value $.01 common stock.
Documents Incorporated by Reference
Part III of this Annual Report on Form 10-KSB incorporates certain information
by reference from the definitive Proxy Statement for the registrant's Annual
Meeting of Stockholders held on May 24, 1996.
Transitional Small Business Disclosure Format (check one):
Yes No X
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ITEM 7: FINANCIAL STATEMENTS
- ------- --------------------
The financial statements required by this Item begin at page F-1
hereof.
ITEM 13: EXHIBITS LIST AND REPORTS ON FORM 8-K
- -------- --------------------------------------
(a) The following exhibits required to be filed by Item 601 of
Regulation S-B are filed as part of this Annual Report on Form 10-KSB:
Exhibit
Number Description of Exhibits
- ------ -----------------------
3.1 Articles of Incorporation of Medical Resource Companies of America
("Registrant") (filed as Exhibit 3.1 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
*3.1.1 Restated Articles of Incorporation of Greenbriar Corporation.
3.2 Bylaws of Registrant (filed as Exhibit 3.2 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
3.2.1 Amendment to Section 3.1 of the Bylaws of Registrant adopted upon
approval of the Merger (filed as Exhibit 3.2.1 to Registrant's Form
S-4 Registration Statement, Registration No. 33-55968, and
incorporated herein by this reference).
*3.3 Certificate of Decrease in Authorized and Issued Shares.
4.1 Certificate of Designations, Preferences and Rights of Preferred
Stock dated October 7, 1992 relating to Registrant's Series A
Preferred Stock (filed as Exhibit 4.1 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
4.1.2 Certificate of Designations, Preferences and Rights of Preferred
Stock dated May 7, 1993, relating to Registrant's Series B
Preferred Stock (filed as Exhibit 4.1.2 to Registrant's Form S-3
Registration Statement, Registration No. 33-64840, and incorporated
herein by this reference.
4.1.3 Certificate of Designations, Preferences and Rights of Preferred
Stock dated August 18, 1993, relating to Registrants' Series C
Preferred Stock (filed as Exhibit 4.1.3 to Registrant's Form 10-KSB
for the year ended December 31, 1993).
*4.1.3.1 Amendment to Certificate of Designations, Preferences and Rights of
Preferred Stock dated August 18, 1993, relating to Registrants'
Series C Preferred Stock.
*4.1.4 Certificate of Designations, Preferences and Rights of Preferred
Stock dated March 15, 1996, relating to Registrants' Series D
Preferred Stock.
*4.1.5 Certificate of Designations, Preferences and Rights of Preferred
Stock dated March 15, 1996, relating to Registrants' Series E
Preferred Stock.
4.3.2 Registration Rights Agreement dated April 27, 1990 between
Registrant's predecessor and International Health Products, Inc.
(assumed by Registrant), which has been assigned to JRG
Investments, Inc., relating to 4,150,000 shares of Registrant's
Common Stock, the benefits of which were further assigned to
Professional Investors Insurance, Inc. as to 600,000 shares in
November 1992 (filed on June 5, 1990, as an Exhibit to the
Registrant's predecessor's Current Report on Form 8-K and
incorporated herein by reference).
2
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Exhibit
Number Description of Exhibits
- ------ -----------------------
4.3.3 Form of Assignment of Registration Rights Agreement dated
September 30, 1992 between JRG Investments, Inc. and Professional
Investors Insurance, Inc. relating to 600,000 shares of
Registrant's Common Stock (filed as Exhibit 4.3.3 to Registrant's
Form S-4 Registration Statement, Registration No. 33-55968, and
incorporated herein by this reference).
4.4 Form of Registration Rights Agreement dated December 1, 1991
between Registrant and W. Michael Gilley (filed as Exhibit 4.4 to
Registrant's Form S-4 Registration Statement, Registration No.
33-55968, and incorporated herein by this reference).
4.5.1 Stock Purchase Agreement dated May 7, 1993 for the purchase of
Complete Corporation and Remuda Acquisition Corporation (filed as
Exhibit 4.5.1 to Registrant's Form 10-KSB for the year ended
December 31, 1993).
4.5.2 Registration Rights Agreement dated May 7, 1993 granted to the
shareholders of Complete Corporation and Remuda Acquisition Corp.
(filed as Exhibit 4.5.2 to Registrant's Form 10-KSB for the year
ended December 31, 1993).
4.5.3 Agreement and Plan of Merger dated June 30, 1994 with New Life
Treatment Centers, Inc. relating to the disposition of Remuda Ranch
Center for Anorexia and Bulimia, Inc. (filed as Exhibit 4.5.3 to
Registrant's Form 10-KSB for the year ended December 31, 1994).
4.5.4 Amended and Restated Certificate of Incorporation of New Life
Treatment Centers, Inc. (filed as Exhibit 4.5.4 to Registrant's
Form 10-KSB for the year ended December 31, 1994).
4.5.5 Registration Right Agreement dated July 29, 1994 re. New Life
Treatment Centers, Inc. (filed as Exhibit 4.5.5 to Registrant's
Form 10-KSB for the year ended December 31, 1994).
4.5.6 Restricted Stock Agreement dated July 29, 1994 re. New Life
Treatment Centers, Inc. (filed as Exhibit 4.5.6 to Registrant's
Form 10-KSB for the year ended December 31, 1994).
4.6.1 Stock Purchase Agreement dated August 16, 1993 for the issuance of
Series C Preferred Stock (filed as Exhibit 4.6.1 to Registrant's
Form 10-KSB for the year ended December 31, 1993).
4.6.2 Stock Purchase Agreement dated August 16, 1993 between Clay Capital
Corporation and Altman Nursing, Inc. (filed as Exhibit 4.6.2 to
Registrant's Form 10-KSB for the year ended December 31, 1993).
4.7.1 Stock Purchase Agreement dated January 30, 1996 between Joseph L.
Durant, Innovative Health Services, Inc. and Medical Resource
Companies of America (filed as Exhibit 4.7.1 to Registrant's
Form 8-K, dated February 20, 1996, and incorporated herein by this
reference).
4.8.1 Stock Purchase Agreement dated March 15, 1996 between Wedgwood
Retirement Inns, Inc., Victor L. Lund, Paul Dendy, Mark Hall, Frank
R. Reeves, Doris Thornsbury, Teresa Waldroff and Medical Resource
Companies of America (filed with Registrant's 8-K, dated
March 15, 1996, and incorporated herein by this reference).
4.8.2 Amendment to Stock Purchase Agreement (dated March 15, 1996) dated
March 15, 1996 between Wedgwood Retirement Inns, Inc., Victor L.
Lund, Paul Dendy, Mark Hall, Frank R.
3
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Exhibit
Number Description of Exhibits
- ------ -----------------------
Reeves, Doris Thornsbury, Teresa Waldroff and Medical Resource
Companies of America (filed with Registrant's 8-K, dated
March 15, 1996, and incorporated herein by this reference).
10.1 Real Estate Lease of Alpha Mobility, Inc. (filed as
Exhibit 10.1 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.3.2 Form of $62,500 Promissory Note dated December 27, 1991 payable to
Registrant by Gene S. Bertcher representing the purchase price for
250,000 shares of Registrant's Common Stock (filed as Exhibit
10.3.2 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.3.3 Form of Renewal of Promissory Note dated October 14, 1992 extending
the maturity date of the Promissory Note referenced in Exhibit
10.3.2 (filed as Exhibit 10.3.3 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.3.4 Form of Security Agreement - Pledge (Nonrecourse) between Gene S.
Bertcher and Registrant securing the Promissory Note referenced in
Exhibit 13.3.2. (filed as Exhibit 10.3.4 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.4.1 Form of Stock Option to purchase 150,000 shares of Registrant's
Common Stock issued to Robert L. Griffis on October 12, 1992 (filed
as Exhibit 10.4.1 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.4.2 Form of $75,000 Promissory Note dated October 12, 1992 payable to
Registrant by Robert L. Griffis representing the purchase price for
150,000 shares of Registrant's Common Stock (filed as Exhibit
10.4.2 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.4.3 Form of Security Agreement - Pledge (Nonrecourse) between
Registrant and Robert L. Griffis securing the Promissory Note
referenced in Exhibit 10.4.2 (filed as Exhibit 10.4.3 to
Registrant's Form S-4 Registration Statement, Registration No.
33-55968, and incorporated herein by this reference).
10.6.1 Form of Stock Option to purchase 100,000 shares of Registrant's
Common Stock issued to Oscar Smith on October 1, 1992 (filed as
Exhibit 10.6.1 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.6.2 Form of $50,000 Promissory Note dated October 1, 1992 payable to
Registrant by Oscar Smith representing the purchase price for
100,000 shares of Registrant's Common Stock (filed as Exhibit
10.6.2 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.6.3 Form of Security Agreement - Pledge (Nonrecourse) between
Registrant and Oscar Smith securing the Promissory Note referenced
in Exhibit 10.6.2 (filed as Exhibit 10.6.3 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
4
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Exhibit
Number Description of Exhibits
- ------ -----------------------
10.7.1 Form of Stock Option to purchase 80,000 shares of Registrant's
Common Stock issued to Lonnie Yarbrough on October 12, 1992 (filed
as Exhibit 10.7.1 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.7.2 Form of $40,000 Promissory Note dated October 12, 1992 payable to
Registrant by Lonnie Yarbrough representing the purchase price for
80,000 shares of Registrant's Common Stock (filed as Exhibit 10.7.2
to Registrant's Form S-4 Registration Statement, Registration No.
33-55968, and incorporated herein by this reference).
10.7.3 Form of Security Agreement - Pledge (Nonrecourse) between
Registrant and Lonnie Yarbrough securing the Promissory Note
referenced in Exhibit 10.7.2 (filed as Exhibit 10.7.3 to
Registrant's Form S-4 Registration Statement, Registration No.
33-55968, and incorporated herein by this reference).
10.8.1 Form of Stock Option to purchase 80,000 shares of Registrant's
Common Stock issued to Dennis McGuire on October 1, 1992 (filed as
Exhibit 10.8.1 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.8.2 Form of $40,000 Promissory Note dated October 1, 1992 payable to
Registrant by Dennis McGuire representing the purchase price for
80,000 shares of Registrant's Common Stock (filed as Exhibit 10.8.2
to Registrant's Form S-4 Registration Statement, Registration No.
33-55968, and incorporated herein by this reference).
10.8.3 Form of Security Agreement - Pledge (Nonrecourse) between
Registrant and Dennis McGuire securing the Promissory Note
referenced in Exhibit 10.8.2 (filed as Exhibit 10.8.3 to
Registrant's Form S-4 Registration Statement, Registration No.
33-55968, and incorporated herein by this reference).
10.9.1 Form of Stock Option to purchase 10,000 shares of Registrant's
Common Stock issued to Michael Merrell on October 12, 1992 (filed
as Exhibit 10.9.1 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.9.2 Form of $5,000 Promissory Note dated October 12, 1992 payable to
Registrant by Michael Merrell representing the purchase price for
10,000 shares of Registrant's Common Stock (filed as Exhibit 10.9.2
to Registrant's Form S-4 Registration Statement, Registration No.
33-55968, and incorporated herein by this reference).
10.9.3 Form of Security Agreement - Pledge (Nonrecourse) between
Registrant and Michael Merrell securing the Promissory Note
referenced in Exhibit 10.9.2 (filed as Exhibit 10.9.3 to
Registrant's Form S-4 Registration Statement, Registration No.
33-55968, and incorporated herein by this reference).
10.9.4 Form of $187,000 promissory note dated December 29, 1994, payable
to Registrant by W. Michael Gilley representing the purchase price
for 150,000 shares of Registrant's Common Stock (filed as Exhibit
10.9.4 to Registrant's Form 10-KSB for the year ended December 31,
1994).
5
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Exhibit
Number Description of Exhibits
- ------ -----------------------
10.9.5 Form of Security Agreement-Pledge between Registrant and W. Michael
Gilley securing the promissory note referenced in Exhibit 10.9.4
(filed as Exhibit 10.9.5 to Registrant's Form 10-KSB for the year
ended December 31, 1994).
10.9.6 Form of $62,500 promissory note dated December 29, 1994, payable to
Registrant by L.A. Tuttle representing the purchase price of 50,000
shares of Registrant's common stock (filed as Exhibit 10.9.6 to
Registrant's Form 10-KSB for the year ended December 31, 1994).
10.9.7 For of Security Agreement-Pledge between Registrant and L.A. Tuttle
securing the promissory note reference in Exhibit 10.9.6 (filed as
Exhibit 10.9.7 to Registrant's Form 10-KSB for the year ended
December 31, 1994).
10.11 Stock Exchange Agreement dated December 31, 1991 for the
acquisition of CareAmerica, Inc. (filed as Exhibit 10.13 to
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1991 and incorporated herein by reference).
10.12 Employment Agreement and Agreement Not to Compete between
Registrant and Dennis McGuire dated November 1, 1990 (filed as
Exhibit 10.12 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.13 Registrant's 1992 Stock Option Plan (filed as Exhibit 10.13 to
Registrant's Form S-4 Registration Statement, Registration No.
33-55968, and incorporated herein by this reference).
10.13.1 Amendment to Registrant's 1992 Stock Option Plan (filed as Exhibit
10.13.1 to Registrant's Form 10-KSB for year ended December 31,
1994).
10.20.2 Contract of Sale dated December 28, 1994 with Autumn America
Retirement, Ltd. regarding the sale of Fountainview Retirement
Center (filed as Exhibit 10.20.2 to Registrant's Form 10-KSB for
year ended December 31, 1994).
10.20.3 Exchange Agreement dated December 20, 1994 to settle the
Fountainview second mortgage profit participation, (filed as
Exhibit 10.20.3 to Registrant's Form 10-KSB for year ended
December 31, 1994).
10.21.1 Extended and Consolidated Promissory Note in the principal amount
of $5,700,000 dated effective May 23, 1992 payable by JRG
Investment Co., Inc. to M.S. Holding Co. Corp. (filed as Exhibit
10.22.1 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.21.2 Extended and Consolidated Pledge Agreement dated effective
May 23, 1992 between JRG Investment Co., Inc. and M.S. Holding Co.
Corp. securing the Note referenced in Exhibit 10.22.1 (filed as
Exhibit 10.22.2 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.21.3 Pledge Agreement dated as of May 23, 1992 between James R. Gilley
and M.S. Holding Co. Corp. (filed as Exhibit 10.22.3 to
Registrant's Form S-4 Registration Statement, Registration No.
33-55968, and incorporated herein by this reference).
6
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Exhibit
Number Description of Exhibits
- ------ -----------------------
10.21.4 Irrevocable Proxy from James R. Gilley to M.S. Holding Co. Corp.
relating to shares of capital stock of JRG Investment Co., Inc.
(filed as Exhibit 10.22.4 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by
this reference).
10.21.5 Blank Assignment and Power of Attorney signed by JRG Investment
Co., Inc. relating to 482,000 shares of Registrant's Common Stock
(filed as Exhibit 10.22.5 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by
this reference).
10.21.6 Blank Assignment and Power of Attorney signed by JRG Investment
Co., Inc. relating to 1,268,000 shares of Registrant's Common Stock
(filed as Exhibit 10.22.6 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by
this reference).
10.21.7 Three Blank Assignments and Powers of Attorney signed by JRG
Investment Co., Inc., each relating to 600,000 shares of
Registrant's Common Stock (filed as Exhibit 10.22.7 to Registrant's
Form S-4 Registration Statement, Registration No. 33-55968, and
incorporated herein by this reference).
10.21.8 Blank Assignment and Power of Attorney signed by JRG Investment
Co., Inc. relating to 2,281,818 shares of Registrant's Common Stock
(filed as Exhibit 10.22.8 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by
this reference).
10.21.9 Blank Assignment and Power of Attorney signed by JRG Investment
Co., Inc. relating to 905,557 shares of Registrant's Series A
Preferred Stock (filed as Exhibit 10.22.9 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.22 Purchase and Sale Agreement dated February 1, 1993 for the purchase
of nursing homes in Houston and San Antonio, Texas (filed as
Exhibit 10.23 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.23.3 Assets Purchase Agreement dated December 13, 1994 with Hermann Park
Manor and HCCI-Houston, Inc. for the Sale of Hermann Park manor
(filed as Exhibit 10.23.3 to Registrant's Form 10-KSB for the year
ended December 31, 1994).
10.23.4 Assets Purchase Agreement dated December 13, 1994 with Alta Vista
Nursing Center, Inc. and HCCI-Houston, Inc. for the Sale of Alta
Vista Nursing Center (filed as Exhibit 10.23.4 to Registrant's
Form 10-KSB for the year ended December 31, 1994).
10.25.1 Agreement dated September 14, 1994 to terminate and settle
Executive Employment Agreement with Arthur G. Weiss (filed as
Exhibit 10.25.1 to Registrant's Form 10-KSB for the year ended
December 31, 1994).
10.30.2 Memorandum of Understanding amending Exhibit 10.30.1. (Filed as
Exhibit 10.30.2 to Registrant's Form 10-KSB for the year ended
December 31, 1993).
10.30.3 Letter dated January 6, 1995, terminating Stock Purchase Agreement
relating to Bankers Protective Life Insurance Company. (Filed as
Exhibit 10.30.3 to Registrant's Form 10-KSB for the year ended
December 31, 1994).
7
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Exhibit
Number Description of Exhibits
- ------ -----------------------
10.33 Stock Option Agreement dated November 21, 1993 between Registrant
and Arthur G. Weiss. (Filed as Exhibit 10.33 to Registrant's
Form 10-KSB for the year ended December 31, 1993).
10.34 Stock Option Agreement dated November 21, 1993 between Registrant
and Gene S. Bertcher. (Filed as Exhibit 10.34 to Registrant's
Form 10-KSB for the year ended December 31, 1993).
10.35.1 Purchase Agreement dated December 6, 1994 with Arizona Baptist
Retirement Centers, Inc. for the Sale of Rivermont at the Trails.
(Filed as Exhibit 10.35.1 to Registrant's Form 10-KSB for the year
ended December 31, 1994).
11.1 Statement Regarding Computation of Earnings per Share of
Registrant.
22.1 Subsidiaries of Registrant.
**23.1 Consent of Grant Thornton.
*27.1 Financial Data Schedule required by Item 601 of Regulation S-B.
- -------------------------
* Filed with the original of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, filed with the Securities and Exchange
Commission on April 14, 1996, or with Amendment No. One or Amendment No. Two
to the original of the Company's Annual Report on Form 10-KSB/A, and
incorporated herein by reference.
** Filed herewith.
b) Reports on Form 8-K - None
8
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Act"), the Company has duly caused this Amendment No. Four to its Annual
Report on Form 10-KSB to be signed on its behalf by the undersigned, thereunto
duly authorized.
GREENBRIAR CORPORATION
August 26, 1996 By: /s/ Gene S. Bertcher
------------------------------------
Gene S. Bertcher, Director,
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
9
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets as of December 31, 1994 and 1995 F-3
Consolidated Statements of Earnings for the years ended December
31, 1994 and 1995 F-5
Consolidated Statement of Changes in Stockholders' Equity for the
years ended December 31, 1994 and 1995 F-6
Consolidated Statements of Cash Flows for the years ended December
31, 1994 and 1995 F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Greenbriar Corporation
We have audited the accompanying consolidated balance sheets of Greenbriar
Corporation and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of earnings, changes in stockholders' equity, and cash
flows for the years then ended. 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 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 consolidated financial position of Greenbriar
Corporation and subsidiaries as of December 31, 1994 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Dallas, Texas
March 8, 1996
F-2
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Greenbriar Corporation
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
December 31,
<TABLE>
<CAPTION>
1995
Pro forma
ASSETS 1994 1995 (Note O)
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 8,311 $ 7,199 $ 7,781
Accounts receivable - trade, less allowance of
$601 in 1994 1,925 23 170
Deferred income tax benefit 2,185 2,150 -
Real estate under contract of sale 14,889 - -
Other current assets 1,455 1,536 2,017
------- ------- -------
Total current assets 28,765 10,908 9,968
REAL ESTATE OPERATIONS HELD FOR SALE,
AT LOWER OF COST OR MARKET 3,204 3,190 5,473
NET ASSETS OF MOBILITY GROUP 3,330 3,371 3,371
INVESTMENT IN SECURITIES, AT COST 1,678 1,853 1,853
MORTGAGE NOTES RECEIVABLE 6,700 7,368 7,368
PROPERTY AND EQUIPMENT, AT COST
Land 100 322 5,998
Buildings and improvements 767 767 45,742
Equipment and furnishings 192 203 1,786
Construction in progress - 1,576 1,928
------- ------- -------
1,059 2,868 55,454
Less accumulated depreciation 186 252 252
------- ------- -------
873 2,616 55,202
RESTRICTED CASH AND INVESTMENTS - - 2,846
OTHER ASSETS 414 466 1,280
------- ------- -------
$44,964 $29,772 $87,361
======= ======= =======
</TABLE>
F-3
<PAGE>
Greenbriar Corporation
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Amounts in thousands, except per share data)
December 31,
<TABLE>
<CAPTION>
1995
Pro forma
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1995 (Note O)
--------- ----------- ----------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Note payable $ 5,008 $ - $ -
Current maturities of long-term debt 379 8 1,525
Long-term debt collateralized by
properties under
contract of sale 8,933 - -
Accounts payable - trade 1,149 412 1,360
Accrued expenses 1,753 343 1,735
Other current liabilities 1,405 130 499
-------- ------- -------
Total current liabilities 18,627 893 5,119
LONG-TERM DEBT 1,110 901 37,218
DEFERRED INCOME TAXES - - 1,111
DEFERRED GAIN 3,083 3,083 3,083
STOCKHOLDERS' EQUITY
Series A cumulative preferred stock,
$.10 par value;
liquidation value of $1,085 in
1994; authorized,
10,000 shares; issued and
outstanding, 1,085
shares in 1994 108 - -
Series B cumulative convertible
preferred stock,
$.10 par value; liquidation value
of $1,351 in
1994 and $1,330 in 1995;
authorized, 100 shares;
issued and outstanding, 14 shares 1 1 1
Series C cumulative convertible
preferred stock,
$.10 par value; liquidation value
of $2,000;
authorized, issued and outstanding,
20 shares 2 2 2
Series D cumulative preferred stock,
$.10 par value
authorized, 675 shares - - 68
Series E cumulative preferred stock,
$.10 par value
authorized, 1,913 shares - - 191
Common stock, $.01 par value;
authorized, 20,000
shares; issued and outstanding,
3,708 and 3,452
shares in 1994 and 1995,
respectively 185 35 35
Additional paid-in capital 36,442 33,957 49,633
Accumulated deficit (12,156) (6,584) (6,584)
-------- ------- -------
24,582 27,411 43,346
Less stock purchase notes receivable
(including
$2,438 from related parties) (2,438) (2,516) (2,516)
-------- ------- -------
22,144 24,895 40,830
-------- ------- -------
$ 44,964 $ 29,772 $87,361
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Greenbriar Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands, except share data)
Years ended December 31,
<TABLE>
<CAPTION>
1994 1995
---------- ---------
<S> <C> <C>
Revenue
Long-term care facilities $7,939 $ 557
Real estate operations 2,029 666
Gain on sales of assets 4,633 7,043
Interest 418 1,205
Other - 239
------ ------
15,019 9,710
Expenses
Long-term care facilities 5,059 322
Real estate operations 1,486 337
General and administrative 4,028 2,764
Interest 2,979 206
------ ------
13,552 3,629
------ ------
Earnings from continuing operations before
income taxes 1,467 6,081
Income tax expense 240 186
------ ------
Earnings from continuing operations 1,227 5,895
Discontinued operations
Loss from operations, net of income taxes (617) (98)
Gain on disposal, net of income taxes 1,178 -
------ ------
NET EARNINGS 1,788 5,797
Preferred stock dividend requirement (327) (225)
------ ------
Earnings allocable to common stockholders $1,461 $5,572
====== ======
Earnings per share
Continuing operations $.24 $1.60
Net earnings $.40 $1.57
Weighted average number of common and equivalent shares
outstanding 3,679 3,539
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Greenbriar Corporation
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Stock
Preferred stock Common stock Additional purchase
------------------ ------------------- paid in Accumulated notes Treasury Total
Shares Amount Shares Amount capital deficit receivable stock equity
-------- -------- -------- --------- ----------- ------------ ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994 1,075 $ 107 18,395 $ 183 $36,132 $(13,616) $(2,250) $(7) $20,549
Issuance of shares - - 147 2 179 - (188) 7 -
Dividends on preferred
stock, including
imputed dividends of $42 44 4 - - 131 (328) - - (193)
Net earnings - - - - - 1,788 - - 1,788
------ ------- ------- ----- ------- -------- ---------- -------- -------
Balances at December 31, 1994 1,119 111 18,542 185 36,442 (12,156) (2,438) - 22,144
Issuance of shares - - 116 1 77 - (78) - -
Conversion of preferred
stock (1) - 19 - - - - - -
Conversion of subordinated
debt - - 67 1 199 - - - 200
Purchase of common stock - - (1,226) (12) (1,998) - - - (2,010)
Purchase of preferred stock (1,085) (108) - - (976) - - - (1,084)
Dividends on preferred stock 1 - - - 73 (225) - - (152)
One-for-five reverse stock
split - - (14,066) (140) 140 - - - -
Net earnings - - - - - 5,797 - - 5,797
------ ------- ------- ----- ------- -------- ---------- -------- -------
Balances at December 31, 1995 34 $ 3 3,452 $ 35 $33,957 $ (6,584) $(2,516) $ - $24,895
====== ======= ======= ===== ======= ======== ========== ======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
Greenbriar Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years ended December 31,
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 1,788 $ 5,797
Adjustments to reconcile net earnings to net
cash used in operating activities
Discontinued operations (561) 98
Depreciation and amortization 1,306 182
Gain on sales of assets (4,633) (7,043)
Recognition of deferred gain (1,070) -
Stock dividends on investment securities - (175)
Changes in operating assets and liabilities
Accounts receivable (72) 1,902
Refundable income taxes 945 -
Deferred income tax benefit 369 35
Other current and noncurrent assets (2,381) (9)
Accounts payable and other liabilities 818 (3,546)
------- -------
Total adjustments (5,279) (8,556)
------- -------
Net cash provided by (used in) operating
activities of:
Continuing operations (3,491) (2,759)
Discontinued operations (231) 209
------- -------
Net cash used in operating activities (3,722) (2,550)
Cash flows from investing activities
Proceeds from sales of assets 32,196 21,885
Proceeds from sales of discontinued operations 6,557 -
Additions to real estate (462) (54)
Purchase of property and equipment (608) (1,809)
Net cash effect of sale of subsidiary (273) -
Additions to mortgage notes receivable - (668)
Investing activities of discontinued operations (344) (348)
------- -------
Net cash provided by investing activities 37,066 19,006
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Greenbriar Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Amounts in thousands)
Years ended December 31,
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Cash flows from financing activities
Proceeds from borrowings
Affiliates $ 1,000 $ -
Other 10,156 -
Payments on debt
Affiliates (1,625) -
Other (35,434) (14,321)
Dividends on preferred stock (193) (152)
Purchase of common and preferred stock - (3,095)
-------- --------
Net cash used in financing activities (26,096) (17,568)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 7,248 (1,112)
Cash and cash equivalents at beginning of year 1,063 8,311
-------- --------
Cash and cash equivalents at end of year $ 8,311 $ 7,199
======== ========
</TABLE>
See Note C for supplemental disclosure of cash flows and noncash investing
and financing transactions.
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations
--------------------
As discussed in Note B, Greenbriar Corporation (formerly Medical Resource
Companies of America) has disposed of substantially all of its nonassisted-
living operating assets. Its business will consist of development and
operation of assisted living facilities which provide housing, hospitality and
personal and healthcare services to elderly individuals. At December 31, 1995,
the Company had one facility under construction and sites under contract for
four facilities. In March 1996, the Company acquired a business that operates
16 facilities. See Note O.
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows.
Principles of Consolidation
---------------------------
The 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.
Depreciation
------------
Depreciation is provided for in amounts sufficient to relate the cost of
property, plant and equipment to operations over their estimated service
lives. Depreciation is computed by the straight-line method.
Profit Recognition on Sales of Real Estate
------------------------------------------
Gains on sales of real estate are recognized when the requirements of
Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
Real Estate," are met. Until the requirements for full profit recognition have
been met, a transaction is accounted for using either the deposit, cost
recovery, installment sale or financing method, whichever is appropriate under
the circumstances.
Use of Estimates
----------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash Equivalents
----------------
The Company considers all short-term deposits and money market investment with
a maturity of less than three months to be cash equivalents.
Impairment of Notes Receivable
------------------------------
A note receivable is identified as impaired when it is probable that interest
and principal will not be collected according to the contractual terms of the
note agreement. The accrual of interest is discontinued on such notes, and no
income is recognized until all past due amounts of principal and interest are
recovered in full.
F-9
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets and certain identifiable intangibles
for impairment when events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. In reviewing
recoverability, the Company estimates the future cash flows expected to result
from using the assets and eventually disposing of them. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized based
on the asset's fair value.
NOTE B - DISCONTINUED OPERATIONS
In 1994, management concluded that operation of skilled medical care
facilities, consisting of nursing homes and eating disorder clinics, was not
in the best interest of the Company. In June 1994, the Company sold its
investment in Remuda Ranch Center for Anorexia and Bulimia, Inc. for shares of
the buyer's preferred stock, which is not marketable, valued at $1,678,000.
The sale resulted in a gain of $804,000. The preferred stock bears a
cumulative dividend of 8% and is convertible into shares of common stock equal
to approximately 4.9% of the outstanding shares at December 31, 1995.
Valuation was based on estimated discounted future cash flows. In December
1994, the Company's subsidiary, Altman Nursing, Inc., sold its two skilled
nursing facilities for an aggregate price of $6,400,000, which resulted in a
gain of $981,000. The aggregate gain of $1,785,000 has been presented net of
applicable income taxes of $607,000.
In 1995, management decided to sell the mobility products segment. The segment
was sold in February 1996 for stock and notes valued at approximately
$4,300,000. A gain of approximately $930,000, less applicable income taxes,
will be recorded in the first quarter of 1996.
Summarized balance sheet data for the mobility products segment is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1994 1995
-------- -------
<S> <C> <C>
Assets
Current assets
Cash $ 65 $ 220
Inventories 370 363
Other 158 174
------ ------
Total current assets 593 757
Net property, plant and equipment 1,052 989
Other noncurrent assets, primarily goodwill and
patents 1,945 1,811
------ ------
3,590 3,557
Liabilities
Current liabilities 260 186
------ ------
Net assets $3,330 $3,371
====== ======
</TABLE>
F-10
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - DISCONTINUED OPERATIONS - Continued
The operations of the skilled medical care segment and the mobility products
segment have been presented in the accompanying financial statements as
discontinued operations.
Summarized operating results of these segments are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
-------- -------
<S> <C> <C>
Revenues $13,581 $2,027
======= ======
Loss before income taxes $ (935) $ (149)
Income tax benefit (318) (51)
------- ------
Net loss from operations $ (617) $ (98)
======= ======
</TABLE>
NOTE C - CASH FLOW INFORMATION
Supplemental information on cash flows and noncash investing and financing
transactions is as follows (in thousands):
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------
1994 1995
-------- -------
<S> <C> <C>
Supplemental cash flow information
Interest paid $ 3,722 $ 211
Income taxes paid 27 46
Supplemental data on noncash investing and financing
activities
Stock dividend paid on preferred shares 93 73
Sale of stock in exchange for notes receivable from
employees and officers 186 78
Conversion of subordinated debt to common stock - 200
Sale of subsidiary
Securities received $(1,678) $ -
Assets sold 4,462 -
Liabilities transferred (3,861) -
Gain on sale 804 -
------- -----
Net cash effect of sale of subsidiary $ (273) $ -
======= =====
</TABLE>
F-11
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE D - DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1994 1995
--------- --------
<S> <C> <C>
Mortgage note payable to a bank, payable monthly through
maturity in 1996. $ 8,933 $ -
Mortgage notes payable to a corporation bearing interest
at 11.52% principal and interest payable in monthly
installments through maturity in 2004. 916 909
Note payable to a corporation bearing interest at 5%;
principal and interest payable in monthly installments
through maturity in December 1995. 341 -
Convertible note payable to an individual bearing interest
at 6%; interest due quarterly and principal due at maturity
in 1998 (convertible into common stock at $3 per share). 200 -
Other 32 -
------- -------
10,422 909
Less: Current maturities (379) (8)
Debt collateralized by properties under contract
of sale (8,933) -
------- -------
$ 1,110 $ 901
======== =======
</TABLE>
NOTE E - INCOME TAXES
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $7,500,000 which expire between 1999 and 2008. However,
approximately $5,100,000 of these net operating loss carryforwards have
limitations that restrict utilization to approximately $600,000 for any one
year. Also, carryforwards of $1,800,000, which expire between 2006 and 2008,
may only be used to offset future taxable income of the subsidiaries in which
the losses were generated.
F-12
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE E - INCOME TAXES - Continued
The following is a summary of the components of income tax expense from
continuing operations (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
Current $ 160 $ 151
Deferred 80 35
------- -------
$ 240 $ 186
======= =======
Deferred tax assets and associated valuation allowances were comprised of the
following (in thousands):
<CAPTION>
December 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 4,650 $ 2,570
Real estate 488 141
Charitable contribution carryforwards - 606
Tax credits 125 220
Accrued expenses 60 103
Other 187 195
------- -------
Total deferred tax assets 5,510 3,835
Valuation allowance (3,325) (1,430)
Deferred tax liabilities:
Investment in securities - (237)
Other - (18)
------- -------
Total deferred tax liabilities - (255)
------- -------
Net deferred tax asset $ 2,185 $ 2,150
======= =======
</TABLE>
Management expects the net deferred tax asset will be recovered within two
to three years from earnings of the Company.
F-13
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE E - INCOME TAXES - Continued
Following is a reconciliation of income tax expense from continuing operations
with the amount of tax computed at the statutory rate (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
----------------
1994 1995
------ --------
<S> <C> <C>
Tax at the statutory rate $ 499 $ 2,004
Amortization of intangibles 113 30
Change in deferred tax asset valuation allowance,
exclusive of reductions for sold company in 1994 (547) (1,895)
Correction of prior period estimates 138 -
Other 37 47
----- -------
Tax expense $ 240 $ 186
===== =======
</TABLE>
Reductions in the deferred tax asset valuation allowance result from
assessments made by the Company each year of its expected future taxable
income available to absorb its carryforwards.
NOTE F - STOCKHOLDERS' EQUITY
On November 17, 1995, the Board of Directors authorized a one-for-five reverse
stock split effective December 1, 1995. All share and per share data has been
retroactively restated to give effect to the stock split.
The Series A preferred stock had a liquidation value of $1 per share and an
initial dividend rate of 6% that escalated to a maximum rate of 12% in 1994.
For accounting purposes, the preferred stock was deemed issued at a discount.
Such discount was being accreted in a manner that resulted in a constant
imputed dividend rate of 12%. Dividends were payable in cash or additional
shares at the stockholders' option. The Series A preferred stock was redeemed
in 1995.
The Series B preferred stock has a liquidation value of $1 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. At
December 31, 1995 and 1994, there were cumulative, unpaid dividends of
approximately $73,000.
The Series C preferred stock has a liquidation value of $1 per share and is
convertible into common stock at a price of $15.00 per share. Dividends are
payable in cash at a rate of 6%.
F-14
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE F - STOCKHOLDERS' EQUITY - Continued
Information relating to stock option activity during 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------
1994 1995
--------- --------
<S> <C> <C>
Outstanding at beginning of year 327,500 155,500
Granted - 10,000
Cancelled (30,000) -
Expired - (10,000)
Reacquired (142,000) -
-------- -------
Outstanding at end of year 155,500 155,500
======== =======
</TABLE>
The options are exercisable at various times through 2005 at prices ranging
from $11.25 to $13.20 per share. In 1994, the Company purchased options
covering 142,000 shares of common stock from a former employee/director for
$178,000.
At December 31, 1995, options to purchase 133,500 shares were exercisable.
NOTE G - EARNINGS PER SHARE
Earnings per share are determined by dividing net earnings, adjusted for
preferred stock dividends, by the weighted average number of common shares
outstanding during the period. Dilutive stock options are included in weighted
average shares outstanding. Fully diluted earnings per share, giving effect to
assumed conversion of convertible preferred stock and notes, are not presented
because the effect of these securities is insignificant.
NOTE H - RELATED PARTY TRANSACTIONS
1994
----
The Company sold to W. Michael Gilley, Executive Vice-President/Director of
the Company, 30,000 shares of common stock for a noninterest-bearing note of
$187,500; principal is due in December 1999. Additional loans to executives
and directors of $55,000 were made in 1994. Also, a former executive of the
Company was paid commissions of $145,000 relating to the sale of property.
Sylvia Gilley, wife of the Company's Chief Executive Officer, James R. Gilley,
made a loan of $1,000,000 to the Company. The loan was repaid during 1994.
1995
----
The Company purchased land from Sylvia Gilley for $221,000.
F-15
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE I - SALES OF ASSETS
Gains on the sale of assets result from the following transactions
(amounts in thousands):
<TABLE>
<CAPTION>
1995 Gain
------ -----
<S> <C>
Sale of Fountainview retirement center for cash of approximately
$18,000 $5,149
Sale of economic interest in legal claim for $1,085 in cash 654
Sale of rights to the interest on escrow funds for cash of $1,140 1,140
Other 100
------
$7,043
1994
------
<S> <C>
Sale of Rivermont retirement center for cash of approximately
$6,900 $1,720
Sale of five commercial properties for approximately $22,000 in
cash and $2,050 in notes 1,095
Sale of investment securities for cash of $2,730 736
Recognition of deferred gain on long-term care facilities sold in
1991 for approximately $15,400 in notes 1,070
Other 12
------
$4,633
======
</TABLE>
The sale of the economic interest in a legal claim resulted from a claim the
Company held against Wespac Investors Trust III ("Wespac") based upon an award
of legal fees following a protacted lawsuit. Wespac subsequently filed for
protection under Chapter 11 of the Bankruptcy Code. The Company then sold its
claim for $1,085,000. The buyer required acquisition of the interest of an
unrelated 49% Wespac shareholder as a condition precedent to the purchase of
the claim. To facilitate the transaction, the Company acquired the 49% equity
interest from the shareholder and immediately conveyed the interest to such
buyer. The Company recorded a gain on the sale of its claim of $654,000, the
excess of the proceeds of $1,085,000 over the Company's cost of the claim of
$431,000.
At December 31, 1994 and 1995, the balance sheet reflects a deferred gain of
$3,083,000. This gain resulted from the sale in 1991 of four nursing homes in
exchange for notes in the principal amount of $15,400,000. The original gain
of $7,259,000 was deferred and is being accounted for by the installment
method. Sales in previous years by the Company of some of the notes resulted
in a reduction of the deferred gain to $3,083,000.
NOTE J - CONTINGENCIES
The Company and a subsidiary, CareAmerica, Inc. (CareAmerica) are defendants
in lawsuits brought by a corporation that purchased nursing homes from the
Company in 1991. The plaintiff alleges mismanagement of the homes during the
period that CareAmerica provided management services, seeks damages in excess
of $1,500,000, seeks cancellation of $6,700,000 of mortgage notes payable to
the Company and secured by the nursing homes, and seeks recovery of interest
payments made on the mortgage notes. The Company has filed a counterclaim for
breach of the management contract and to confirm the indebtedness. The
plaintiff terminated the contract and claimed that the mortgage notes had
previously been discharged. The Company believes that the plaintiff's actions,
including payments against the indebtedness, are inconsistent with the
plaintiff's claims that the notes have been discharged. The company intends to
vigorously contest those lawsuits and pursue its counterclaims against the
plaintiff.
The Company is also defendant in several other lawsuits arising in the
ordinary course of business. Management of the Company is of the opinion that
these lawsuits will not have a material effect on the consolidated results of
operations or financial position of the Company.
F-16
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE K - SEGMENT INFORMATION
The Company's operations are classified into two business segments: real
estate and residential retirement centers. The real estate segment involves
the ownership and operation of commercial real estate. The residential
retirement segment involves the ownership and management of retirement
centers. The Company's mobility products segment has been presented as a
discontinued operation (Note B). Information with respect to business segments
for the years ended December 31, 1995 and 1994 is set forth below (amounts in
thousands):
<TABLE>
<CAPTION>
Real Residential Corporate
estate retirement and other Total
-------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
1995
----
Revenues $ 789 $ 5,706 $ 3,215 $ 9,710
Gain on sale of assets 93 5,149 1,801 7,043
Earnings from continuing
operations before income
taxes 271 5,274 536 6,081
Identifiable assets 3,326 1,527 24,919 29,772
Depreciation 77 43 62 182
Capital expenditures 54 353 11 418
1994
----
Revenues $ 5,132 $ 9,660 $ 227 $15,019
Gain on sale of assets 2,913 1,720 - 4,633
Earnings (loss) from continuing
operations before income
taxes 2,483 1,848 (2,864) 1,467
Identifiable assets 11,608 15,038 18,318 44,964
Depreciation 239 683 66 988
Capital expenditures 462 43 573 1,078
</TABLE>
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
values:
Cash and cash equivalents - The carrying amount approximates fair value
because of the short maturity of these instruments.
Investment in securities - The investment in securities consists of 8%
convertible preferred stock of a private company. Fair value, based on
estimated future discounted cash flows, approximates carrying value.
F-17
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
Mortgage notes receivable - The mortgage notes receivable consist primarily of
$6,700,000 of notes with a stated interest rate of 14%, due in 2021 from
Southern Care Corp., the plaintiff in the lawsuit discussed in Note J. The
obligor has brought suit to cancel the notes, and as a result, future cash
flows are not predictable. Therefore, it is not practicable to estimate the
fair value of the notes.
Long-term debt - The fair value of the Company's long-term debt is estimated
based on market rates for the same or similar issues. At December 31, 1995,
the carrying amount of long-term debt approximates its fair value.
Accounts receivable and payable - The carrying amount approximates fair value
because of their short maturity.
<TABLE>
<CAPTION>
NOTE M - NOTES RECEIVABLE
Stock Purchase Notes
--------------------
December 31,
--------------
1994 1995
------ ------
(in thousands)
<S> <C> <C>
Related party
Note from James R. Gilley, chief executive officer,
principal and interest at 5-1/2%, due November 2003 $2,250 $2,250
Note from W. Michael Gilley, executive
vice-president/director, noninterest-bearing and
due in December 1999 188 188
Other employees 78 -
------ ------
$2,516 $2,438
====== ======
</TABLE>
All stock purchase notes are collateralized by common stock of the company
and are presented in the balance sheet as a deduction from stockholders'
equity.
<TABLE>
<CAPTION>
Mortgage Notes
--------------
December 31,
--------------
1994 1995
------ ------
<S> <C> <C>
Notes receivable from a corporation, collateralized by a
third lien on real property, interest at 14% due annually,
principal due in 2021 $6,700 $6,700
Other notes 668 -
------ ------
$7,368 $6,700
====== ======
</TABLE>
F-18
<PAGE>
NOTE M - NOTES RECEIVABLE - Continued
In connection with certain litigation in which the Company is defendant (see
Note J), the maker of the $6,700,000 note stopped making the interest payments
required under the note. As a result, the Company ceased recording the accrual
of interest income. Had the Company been accruing interest on this note, the
amount recognized would have been approximately $900,000 in 1995. No interest
income was recognized on this note in 1995.
Based on the value of the underlying collateral at December 31, 1995, no
impairment reserve is required for this note.
NOTE N - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1995, the Company made an adjustment to reduce
the deferred tax valuation allowance by $1,895,000.
During the fourth quarter of 1994, the Company wrote off goodwill related to a
1992 acquisition of approximately $150,000, made other adjustments reducing
earnings by approximately $175,000 and reduced the deferred tax valuation
allowance by approximately $550,000. The goodwill write off resulted from the
decision to discontinue the sale of mobility products to third parties.
The adjustments to the deferred tax valuation allowance resulted from
assessments made by the Company of its expected future taxable income
available to absorb its net operating loss carryforwards.
NOTE O - ACQUISITION OF WEDGWOOD RETIREMENT INNS, INC. AND AFFILIATES
In March 1996, the Company acquired substantially all of the assets and
liabilities of a number of companies under common control and managed by
Wedgwood Retirement Inns, Inc. The business of these companies consists of the
operation of 16 assisted living, congregate and Alzheimer's facilities. To
structure the Wedgwood acquisition as a tax-free exchange, the Company also
acquired a shopping center in North Carolina from James R. Gilley and members
of his family (the Gilley Group). Due to the fact that the Gilley Group is a
majority shareholder of Greenbriar and owner of the shopping center, the
property was recorded at the Gilley Group's historical cost basis of
approximately $2,300,000. Consideration given was 675,000 shares of Series D
preferred stock. Wedgwood's assets were valued at approximately $58,000,000
($54,000,000 of property and equipment) and liabilities assumed were
approximately $44,000,000. In exchange, Greenbriar issued 1,949,950 shares of
Series E preferred stock, valued at approximately $14,000,000, to the Wedgwood
shareholders. The Series D and E preferred stock is convertible, upon approval
of the common stockholders, into 1,962,458 shares of common stock.
The 1995 unaudited pro forma balance sheet presents the consolidated financial
position of the Company as if the acquisition had occurred at December 31,
1995. The pro forma balance sheet is for illustrative purposes only and does
not purport to be indicative of the actual financial position had the
transaction been consummated as of that date.
F-19
<PAGE>
EXHIBIT 23.1
Consent of Independent Certified Public Accountants
We have issued our report dated March 8, 1996, accompanying the consolidated
financial statements included in the Annual Report of Greenbriar Corporation on
Form 10-KSB for the year ended December 31, 1995. We hereby consent to the
incorporation by reference of said report in the Registration Statements of
Greenbriar Corporation on Form S-3 (File No. 33-64840) and Form S-8 (File No.
33-65856).
/s/ Grant Thornton LLP
- ----------------------------
GRANT THORTON LLP
Dallas, Texas
August 23, 1996
