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