<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 June 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)
(214) 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 August 14, 1996, the issuer had outstanding 3,479,000 shares of par value
$.01 common stock.
1
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GREENBRIAR CORPORATION
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION 3
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-
June 30, 1996 and December 31, 1995 4
Consolidated Statements of Earnings- 6
Three and Six Month Periods Ended
June 30, 1996 and 1995
Consolidated Statements of Cash Flows- 8
Six Month Periods Ended June 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 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
2
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PART I - FINANCIAL INFORMATION
3
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,928 $ 7,199
Accounts receivable 948 23
Deferred income tax benefit - 2,150
Real estate operations held for sale 5,432 -
Other current assets 1,273 1,536
------- -------
TOTAL CURRENT ASSETS 10,581 10,908
REAL ESTATE - 3,190
NET ASSETS OF MOBILITY GROUP - 3,371
INVESTMENT IN SECURITIES, AT COST 4,153 1,853
NOTES RECEIVABLE 9,179 7,368
PROPERTY AND EQUIPMENT, AT COST
Land 7,624 322
Buildings and improvements 48,484 767
Equipment and furnishings 2,013 203
Construction in progress 3,963 1,576
------- -------
62,084 2,868
Less accumulated depreciation 683 252
------- -------
61,401 2,616
RESTRICTED CASH AND INVESTMENTS 3,050 105
OTHER ASSETS 1,397 361
------- -------
$89,761 $29,772
======= =======
</TABLE>
4
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations $ 960 $ 8
Due to affiliates 718 -
Accounts payable 1,727 412
Accrued expenses 1,547 343
Mortgage notes collateralized by
real estate held for sale 905 -
Other current liabilities 617 130
------- -------
TOTAL CURRENT LIABILITIES 6,474 893
LONG-TERM OBLIGATIONS 37,672 901
DEFERRED INCOME TAXES 1,309 -
DEFERRED GAIN 3,083 3,083
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value;
liquidation value of $24,237 in
1996 and $3,330 in 1995; authorized,
10,000 shares; issued and outstanding
(in four series),2,648 shares in 1996
and 34 shares in 1995 266 3
Common stock, $.01 par value; authorized,
100,000 shares; issued and outstanding,
3,478 shares in 1996 and 3,452 shares in
1995 35 35
Additional paid-in capital 49,846 33,957
Accumulated deficit (6,408) (6,584)
------- -------
43,739 27,411
Less stock purchase notes receivable (2,516) (2,516)
------- -------
41,223 24,895
------- -------
$89,761 $29,772
======= =======
</TABLE>
5
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTH PERIOD ENDED MONTH PERIOD ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------ ------ ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE
Assisted living facility income $4,319 $ - $4,319 $ 555
Other 47 - 47 -
------ ------ ------ -------
4,366 - 4,366 555
OPERATING EXPENSES
Assisted living facility
operating expenses 2,706 - 2,706 276
Lease expense 454 - 454 -
Facility depreciation and
amortization 405 - 405 42
Corporate general and
administrative 807 611 1,519 1,300
------ ------ ------ -------
4,372 611 5,084 1,618
------ ------ ------ -------
OPERATING LOSS (6) (611) (718) (1,063)
OTHER INCOME (EXPENSE)
Interest and dividend income 224 375 468 568
Interest expense (798) (3) (798) (98)
Gain on sales of assets - 655 32 5,804
Other 3 - 453 9
Minority interest in earnings of
consolidated partnership (37) - (37) -
------ ------ ------ -------
(608) 1,027 118 6,283
------ ------ ------ -------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES (614) 416 (600) 5,220
INCOME TAX EXPENSE (BENEFIT) (234) 143 (229) 1,775
------ ------ ------ -------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS (380) 273 (371) 3,445
DISCONTINUED OPERATIONS
Earnings from operations,
net of income taxes 78 78 116 12
Gain on disposal, net of
income taxes - - 580 -
------ ------ ------ -------
NET EARNINGS (LOSS) (302) 351 325 3,457
</TABLE>
6
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GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS - Continued
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTH PERIOD ENDED MONTH PERIOD ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------- ------- ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Preferred stock dividend
requirement (114) (47) (148) (128)
------ ------ ------ -------
Earnings (loss) allocable to
common shareholders $ (416) $ 304 $ 177 $ 3,329
====== ====== ====== =======
Earnings (loss) per share
Continuing operations $(0.14) $ 0.06 $(0.15) $ 0.90
Net earnings $(0.12) $ 0.09 $ 0.05 $ 0.90
Weighted average number of
common and equivalent
shares outstanding 3,478 3,511 3,460 3,679
</TABLE>
7
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
For The Six
Month Period Ended
June 30, June 30,
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 325 $ 3,457
Adjustments to reconcile net
earnings to net cash used in
operating activities
Discontinued operations (696) (12)
Depreciation and amortization 431 76
Gain on sales of assets (32) (5,804)
Changes in operating assets
and liabilities
Accounts receivable (368) 795
Due to/from affiliates (6) 3
Deferred income taxes 199 1,781
Other current and noncurrent
assets (848) 634
Accounts payable and other
liabilities (237) (2,246)
------- -------
Total adjustments (1,557) (4,773)
------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES OF:
Continuing operations (1,232) (1,316)
Discontinued operations (190) 336
------- -------
NET CASH USED IN OPERATING
ACTIVITIES (1,422) (980)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of assets 256 19,361
Purchase of property and equipment (5,427) (43)
Net cash effect of purchase of
businesses 739 -
Additions to loans receivable (459) (5,478)
Repayment of loans receivable 148 1,500
Investing activities of discontinued
operations (3) 483
------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (4,746) 15,823
</TABLE>
8
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Amounts in thousands)
<TABLE>
<CAPTION>
For The Six
Month Period Ended
June 30, June 30,
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings $ 2,257 $ -
Payments on debt (156) (14,140)
Dividends on preferred stock (80) (92)
Retirement of preferred stock - (1,085)
Purchase of common stock (122) (1,301)
Financing activities of discontinued
operations (2) (17)
------- --------
NET CASH PROVIDED BY (USED
IN)FINANCING ACTIVITIES 1,897 (16,635)
------- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (4,271) (1,792)
Cash and cash equivalents at beginning
of period 7,199 8,202
------- --------
Cash and cash equivalents at end of
period $ 2,928 $ 6,410
======= ========
</TABLE>
Supplemental information on noncash investing and financing transactions
is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Stock dividend paid on preferred
shares $ 73 $ -
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 six month period ended June 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
- --------------------
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, will have no trading market unless converted
to common stock, and will be 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
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GREENBRIAR CORPORATION
----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE B - ACQUISITION - CONTINUED
- --------------------------------
The Series E preferred stock bears no dividend for two years and it is
anticipated that Series E shares will be converted to Greenbriar common stock
before that time. With stockholder approval, expected at a stockholders' meeting
anticipated to be held in September 1996, both series of preferred stock will
become convertible into unregistered shares of Greenbriar common stock, with the
Series E convertible at 1.2 shares for each share of Greenbriar common stock and
Series D convertible at two shares for each share of Greenbriar common stock.
As such, the Series D will be convertible into 337,500 shares and the Series E
will be convertible into 1,624,958 shares. In the event the stockholders of the
Company fail to approve, within two years from the issuance date, the rights of
the Series E preferred stockholders to convert their shares into shares of the
Company's common stock, the Series E preferred stock will bear a cumulative
dividend of 12% from the date of issuance.
The following table presents pro forma unaudited consolidated results of
operations for the three month period ended June 30, 1995 and six month periods
ended June 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 SIX
MONTH PERIOD ENDED MONTH PERIOD ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
(Actual) (Pro forma) (Pro forma) (Pro forma)
-------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $4,366 $3,541 $8,628 $7,589
Earnings (loss)from
continuing operations $ (380) $ 130 $ (643) $3,052
Net earnings (loss) $ (302) $ 208 $ 53 $3,064
Earnings (loss) allocable to
common shareholders $ (416) $ 81 $ (175) $2,776
Earnings (loss) per share
Continuing operations $(0.14) $ 0.00 $(0.20) $ 0.52
Net earnings $(0.12) $ 0.02 $(0.04) $ 0.52
</TABLE>
NOTE C - DISPOSITION OF REAL ESTATE OPERATIONS
- ----------------------------------------------
In August 1996, the Company entered into contracts to sell three of its four
remaining real estate assets. The fourth property, a shopping center, is being
11
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GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
$5,432,000 book value of the real estate assets.
Accordingly, the Company's real estate operations have been reflected as
discontinued in the financial statements at June 30, 1996. Financial statements
for prior periods have been restated for comparability. Revenues from real
estate operations for the three months ended June 30, 1996 and 1995 were
$234,000 and $177,000, respectively, and for the six months ended June 30, 1996
and 1995 were $390,000 and $372,000, respectively.
NOTE D - LONG-TERM OBLIGATIONS
- ------------------------------
Long-term obligations consist of the following(amounts in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Notes payable to banks and financial
institutions $15,356 $ 909
Notes payable to individuals and
companies 4,626 -
Note payable to the Redevelopment
Agency of the City of Corona, CA 7,740 -
Financing obligations 10,815 -
Other 95 -
------- -----
38,632
Less current maturities 960 8
------- -----
Long-term obligations $37,672 $ 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
June 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 June 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 June
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 $2,000;
authorized, issued and outstanding, 20 shares 2 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 -
Series E cumulative preferred stock, $.10 par
value; liquidation value of $18,552 in 1996;
authorized, issued and outstanding 1,950 shares
in 1996 195 -
----- ------
$ 266 $ 3
===== ======
</TABLE>
13
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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 August 1, 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 (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). 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 June 30, 1996, the Company had working capital of $4,107,000. 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 June 30, 1996, the Company had assets of
$89,761,000, liabilities of $48,538,000 and stockholders' equity of
$41,223,000.
Net cash used for operating activities during the six months ended June 30, 1996
was $1,422,000 principally constituting general and administrative expenses and
interest expense in excess of income from real estate operations and interest
income. This is a level consistent with that of operations of the prior year.
Net cash used in investing activities during the six months ended June 30, 1996
was $4,746,000 resulting primarily from development and construction activities
of assisted living facilities.
Net cash provided by financing activities during the six months ended June 30,
1996 was $1,897,000 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.
14
<PAGE>
GREENBRIAR CORPORATION
Liquidity and Capital Resources - Continued
- -------------------------------
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.
As of June 30, 1996 the Company owns three retail centers located in Georgia and
one shopping center in North Carolina. The three retail centers are currently
under contract for sale and the Company 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 $5,432,000.
The Company has financed the construction of its assisted living facility in
Denison, Texas with approximately $3,200,000 of its own cash, and is now in the
process of financing the facility.
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 $300,000, and repurchases of common stock totaling
approximately $2,000,000, offset by additional borrowings of approximately
$10,200,000 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 August 1, 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 June 30, 1997. The Company has
eleven facilities under development which are estimated to cost approximately
$41,918,000. Of the resulting total of $67,339,000 of development costs that the
Company is responsible for financing, the Company has financing committed for
five specific facilities costing $21,530,000. The remaining development and
construction costs of approximately $48,370,000 are expected to be financed from
available sources as described below in the amount of $60,000,000 or from other
sources the Company is seeking.
The Company is actively negotiating to acquire twenty additional sites for the
development of both assisted living and Alzheimer facilities. There can be no
assurance that any or all of these sites will be acquired and developed.
15
<PAGE>
GREENBRIAR CORPORATION
Liquidity and Capital Resources - Continued
- -------------------------------
As of August 1, 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:
(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 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
16
<PAGE>
GREENBRIAR CORPORATION
Liquidity and Capital Resources - Continued
- -------------------------------
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%).
(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 is presently under construction. 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.
17
<PAGE>
GREENBRIAR CORPORATION
RESULTS OF OPERATIONS
- ---------------------
THREE AND SIX MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO THREE AND SIX END
MONTH PERIOD ENDED JUNE 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 during the second quarter of those 15 facilities as well as one
facility which opened in June 1996.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED JUNE 30, 1996
(Amounts in thousands)
Stabilized Start-up Total
Residences Residences
(1) (2)
---------- ---------- -------
<S> <C> <C> <C>
Assisted living facility income $3,646 $ 673 $4,319
Assisted living facility operating
expenses 2,093 613 2,706
------ ----- ------
Gross operating income 1,553 60 1,613
Lease expense 392 62 454
Facility depreciation & amortization 294 111 405
------ ----- ------
Income(loss)from facility operations $ 867 $(113) $ 754
====== ===== ======
</TABLE>
(1) Stabilized residences are those residences that have been operating for
one year or have achieved stabilized occupancy of 95%
(2) Start-up residences are those residences that have not been operating
for one year and have not achieved a stabilized occupancy of 95% or more.
(3) The Company had 11 stabilized and 5 start-up residences.
Corporate General and Administrative Expenses
- ---------------------------------------------
Corporate general and administrative expenses were $807,000 and $1,519,000 for
the three and six months ended June 30, 1996. Expenses for the comparable
period in 1995 were $611,000 and $1,300,000. The increases were due primarily to
the acquisition of Wedgwood.
18
<PAGE>
GREENBRIAR CORPORATION
RESULTS OF OPERATIONS - Continued
- ---------------------
Interest Expense
----------------
Interest expense for the three and six months ended June 30, 1996 was
$798,000 as compared to $3,000 and $98,000 for the comparable periods in
1996. 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 six month periods ended June 30,
1995 were $655,000 and $5,804,000 respectively. These gains were from the
sale of the Fountainview in January 1995 ($5,149,000) and sale of an economic
interest in a legal claim in June 1995 ($655,000).
Discontinued Operations
-----------------------
Earnings from discontinued operations include both the Mobility Group, which
was sold in February 1996, and the real estate operations that are for sale.
The Mobility Group had losses of $29,000 and $132,000 for the three and six
months ended June 30, 1995 respectively. The real estate operations had
earnings of $78,000 and $116,000 for the three and six months ended June 30,
1996, respectively, and earnings of $107,000 and $144,000 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 are 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>
PART II. OTHER INFORMATION
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) Since April 1, 1996, the Company filed the following reports on Form
8-K and amendments to previously filed Form 8-K's:
Form 8-K filed 4/1/96 to report the acquisition of Wedgwood
Form 8-K/A filed 5/30/96 to amend the report on the acquisition of
Wedgwood
Form 8-K/A filed 7/24/96 to amend the report on the acquisition of
Wedgwood
Form 8-K/A filed 7/24/96 to amend the report on the sale of a
subsidiary and properties
Form 8-K/A filed 7/24/96 to amend the report on the sale of The
Mobility Group
Form 8-K/A filed 8/9/96 to amend the report on the acquisition of
Wedgwood
Form 8-K/A filed 8/9/96 to amend the report on the sale of The
Mobility Group
Form 8-K/A being filed concurrently herewith to amend the report on
the acquisition of Wedgwood
22
<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: August 15, 1996 By: Gene S. Bertcher
---------------------------------
Executive Vice President
Chief Financial Officer
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND THE CONSOLIDATED
STATEMENT OF EARNINGS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,928
<SECURITIES> 0
<RECEIVABLES> 948
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,581
<PP&E> 62,084
<DEPRECIATION> 683
<TOTAL-ASSETS> 89,761
<CURRENT-LIABILITIES> 6,474
<BONDS> 37,672
0
266
<COMMON> 35
<OTHER-SE> 40,922
<TOTAL-LIABILITY-AND-EQUITY> 89,761
<SALES> 0
<TOTAL-REVENUES> 4,366
<CGS> 0
<TOTAL-COSTS> 3,565
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 798
<INCOME-PRETAX> (600)
<INCOME-TAX> (229)
<INCOME-CONTINUING> (371)
<DISCONTINUED> 696
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
