<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 1996
GREENBRIAR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 0-8187 75-239947
- -------------------- --------------- ---------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4265 KELLWAY CIRCLE, ADDISON, TEXAS 75244
- ------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 407-8400
----------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
AMERICAN CARE COMMUNITIES, INC.
On December 31, 1996, the Company acquired American Care Communities, Inc.
("AMERICAN CARE COMMUNITIES, INC."), a private company, by means of a merger of
AMERICAN CARE COMMUNITIES, INC. into a wholly owned subsidiary of Registrant.
AMERICAN CARE COMMUNITIES, INC. was founded in July 1993 to acquire, develop and
operate assisted living facilities. AMERICAN CARE COMMUNITIES, INC., which is
headquartered in Cary, North Carolina, currently owns, operates or manages a
total of 15 assisted or independent living facilities with a capacity for 1,275
residents. AMERICAN CARE COMMUNITIES, INC. has thirteen facilities located in
North Carolina, one in Florida and one in Maine.
The consideration for the American Care acquisition was 1,300,000 shares of
unregistered Greenbriar common stock issued to the sellers who consist of twelve
persons, all of whom were previously unrelated to Greenbriar Corporation. Such
consideration was determined by means of arm's length negotiations among the
parties.
Upon closing of the acquisition, Floyd B. Rhoades, who until the acquisition,
was Chairman, President, Chief Executive Officer and the majority shareholder of
AMERICAN CARE COMMUNITIES, INC., entered into a three year employment agreement
to become President and Chief Executive Officer of Greenbriar Corporation. Mr.
Rhoades has also become a member of the Company's Board of Directors and its
Executive Committee.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) and (b) The audited and unaudited interim financial information and
pro forma financial information regarding American Care
Communities, Inc. ("American Care") are hereby incorporated by
reference from pages F-11 through F-17 and pages F-38 through
F-52 of Greenbriar's Proxy Statement dated December 19, 1996
relating to the Special Meeting of Stockholders held
December 30, 1996.
(c) Exhibits. The following exhibits are being filed herewith:
--------
2. Agreement and Plan of Merger (previously filed)
99.1 The following pages of Greenbriar's Proxy Statement dated
December 19, 1996: pages F-11 through F-17 and F-38 through
F-52.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GREENBRIAR CORPORATION
Dated:____________ By:
--------------------------------------
Name: Gene S. Bertcher
Title: Chief Financial Officer
<PAGE>
EXHIBIT 99.1
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed combined financial information has
been prepared by the Company based on the audited financial statements and the
related notes thereto of the Company, Wedgwood and American Care for the years
ended December 31, 1994 and 1995, the unaudited financial statements of the
Company and American Care as of September 30, 1996 and for the nine months ended
September 30, 1995 and 1996, and Wedgwood for the three months ended March 31,
1996, and give effect to the American Care and Wedgwood Acquisitions as though
they occurred January 1, 1994, and reflect the assumptions and adjustments
described in the accompanying notes. The Wedgwood Acquisition has been
accounted for using the purchase method of accounting. The results of
operations of Wedgwood are reflected in the historical statement of operations
of the Company beginning April 1, 1996. The American Care Acquisition has been
accounted for as a pooling of interests. The following unaudited pro forma
condensed combined financial information is not necessarily indicative of the
actual results that would have been achieved if the Wedgwood and American Care
Acquisitions had actually been completed as of the date indicated, or which may
be realized in the future. The pro forma statement of operations for the years
ended December 31, 1995 and 1994 and the nine months ended September 30, 1995
also gives effect to the disposition of The Fountainview (January 1995). The
unaudited pro forma condensed combined financial information should be read in
conjunction with the financial statements of the Company and American Care and
the related notes thereto included elsewhere in this Proxy. See "Index to
Consolidated Financial Statements."
F-11
<PAGE>
GREENBRIAR CORPORATION
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
(Amounts in thousands)
September 30, 1996
<TABLE>
<CAPTION>
Greenbriar American Pro forma
ASSETS Corporation Care Adjustments Combined
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,225 $ 24 $ - $ 4,249
Accounts receivable
Trade 746 353 - 1,099
Other - 99 - 99
Real estate operations held for sale,
at lower of cost or market 5,405 - - 5,405
Other current assets 1,151 1,388 - 2,539
------- ------- ----- --------
Total current assets 11,527 1,864 - 13,391
INVESTMENT IN SECURITIES, AT COST 4,266 - - 4,266
NOTES RECEIVABLE 8,959 - - 8,959
PROPERTY AND EQUIPMENT, AT COST
Land 7,832 2,435 - 10,267
Buildings and improvements 48,628 9,295 - 57,923
Furniture, fixtures, and equipment 2,078 1,561 - 3,639
Construction in process 6,790 5,214 - 12,004
------- ------- ----- --------
65,328 18,505 - 83,833
Less accumulated depreciation
and amortization 1,106 911 - 2,017
------- ------- ----- --------
64,222 17,594 - 81,816
RESTRICTED CASH AND INVESTMENTS 3,521 - - 3,521
OTHER ASSETS 2,404 1,833 - 4,237
------- ------- ----- --------
$94,899 $21,291 $ - $116,190
======= ======= ===== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 977 $ 5,638 $(500)(7) $ 6,115
Due to affiliates 589 358 - 947
Long-term debt collateralized by property
under contract of sale 903 - - 903
Accounts payable - trade 2,335 1,301 - 3,636
Accrued expenses 1,455 1,126 800 (6) 2,721
Other current liabilities 1,089 37 - 1,126
------- ------- ----- --------
Total current liabilities 7,348 8,460 300 15,448
LONG-TERM DEBT, less current maturities 43,034 14,788 - 57,822
DEFERRED INCOME TAXES 1,037 - - 1,037
DEFERRED GAIN 3,083 - - 3,083
STOCKHOLDERS' EQUITY (DEFICIT) 40,397 (1,957) (300)(6)(7) 38,800
------- ------- ----- --------
$94,899 $21,291 $ - $116,190
======= ======= ===== ========
</TABLE>
See accompanying explanatory notes.
F-12
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the year ended December 31, 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
Less operations before
of the American
Foundationview Pro Forma Care American Pro Forma
Company (4) Wedgwood Adjustments acquisition Care Adjustments Combined
------- -------------- -------- ------------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Assisted living facilities $ 7,939 $(6,000) $12,018 $ - $13,957 $ 3,708 $ - $17,665
Expenses
Assisted living facilities 5,059 (4,340) 8,585 - 9,304 2,766 - 12,070
Facility depreciation and
amortization - - 1,216 (95)(1) 1,121 233 - 1,354
General and administrative 3,502 (293) 738 - 3,947 615 - 4,562
------- ------- ------- ------ ------- ------- ----- -------
8,561 (4,633) 10,539 (95) 14,372 3,614 - 17,986
------- ------- ------- ------ ------- ------- ----- -------
Operating profit (loss) (622) (1,367) 1,479 95 (415) 94 - (321)
Other income (expense)
Interest and dividend income 208 - 74 - 282 8 - 290
Interest expense (2,221) 1,647 (2,191) - (2,765) (540) - (3,305)
Gain on sales of assets 2,803 - - - 2,803 - - 2,803
Other - - 77 - 77 192 - 269
------- ------- ------- ------ ------- ------- ----- -------
790 1,647 (2,040) - 397 (340) - 57
Earnings (loss) from
continuing operations
before income taxes 168 280 (561) 95 (18) (246) - (264)
Income tax expense
(benefit) (201) - - 194 (3) (7) - (93)(3) (100)
------- ------- ------- ------ ------- ------- ----- -------
Earnings (loss) from
continuing operations 369 280 (561) (99) (11) (246) 93 (164)
Preferred dividend
requirement (327) - - (320)(2) (647) - - (647)
------- ------- ------- ------ ------- ------- ----- -------
Earnings (loss) from
continuing operations
allocable to common
stockholders $ 42 $ 280 $ (561) $ (419) $ (658) $ (246) $ 93 $ (811)
======= ======= ======= ====== ======= ======= ===== =======
Earnings (loss) per share
from continuing operations $0.01 $(0.16)
Weighted average number of
common and equivalent
shares outstanding 3,679 4,979
</TABLE>
See accompanying explanatory notes.
F-13
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the year ended December 31, 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
Less operations before
of the American
Foundationview Pro Forma Care American Pro Forma
Company (4) Wedgwood Adjustments acquisition Care Adjustments Combined
------- -------------- -------- ------------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Assisted living facilities $ 557 $ (557) $14,940 $ - $14,940 $ 6,811 $ - $21,751
Expenses
Assisted living facilities 322 (322) 10,916 - 10,916 4,815 - 15,731
Facility depreciation and
amortization - - 1,374 (95)(1) 1,279 483 - 1,762
General and administrative 2,688 (38) 959 - 3,609 1,260 - 4,869
------- ------- ------- ------- ------- ------- ------- -------
3,010 (360) 13,249 (95) 15,804 6,558 - 22,362
------- ------- ------- ------- ------- ------- ------- -------
Operating profit (loss) (2,453) (197) 1,691 95 (864) 253 - (611)
Other income (expense)
Interest and dividend
income 1,176 - 160 - 1,336 23 - 1,359
Interest expense (101) 73 (2,843) - (2,871) (1,447) - (4,318)
Gain on sales of assets 6,950 (5,149) - - 1,801 - - 1,801
Other 239 - 94 - 333 646 - 979
------- ------- ------- ------- ------- ------- ------- -------
8,264 (5,076) (2,589) - 599 (778) - (179)
Earnings (loss) from
continuing operations
before income taxes 5,811 (5,273) (898) 95 (265) (525) - (790)
Income tax expense
(benefit) 94 - - (184)(3) (90) - (210)(3) (300)
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
continuing operations 5,717 (5,273) (898) 279 (175) (525) 210 (490)
Preferred dividend
requirement (225) - - (320)(2) (545) - - (545)
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
continuing operations
allocable to common
stockholders $ 5,492 $(5,273) $ (898) $ (41) $ (720) $ (525) $ 210 $(1,035)
======= ======= ======= ======= ====== ======= ======= =======
Earnings (loss) per share
from continuing operations $1.55 $(0.21)
Weighted average number of
common and equivalent
shares outstanding 3,539 4,839
</TABLE>
See accompanying explanatory notes.
F-14
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the nine months ended September 30, 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
Less operations before
of the American
Foundationview Pro Forma Care American Pro Forma
Company (4) Wedgwood Adjustments acquisition Care Adjustments Combined
------- -------------- -------- ------------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Assisted living facilities $ 555 $ (555) $10,905 $ - $10,905 $ 4,773 $ - $15,678
Expenses
Assisted living facilities 276 (276) 7,980 - 7,980 2,974 - 10,954
Facility depreciation and
amortization 42 (42) 893 (77)(1) 816 342 - 1,158
General and administrative 1,947 (40) 686 - 2,593 868 - 3,461
------- ------- ------- ------- ------- ------- ------- -------
2,265 (358) 9,559 (77) 11,389 4,184 - 15,573
------- ------- ------- ------- ------- ------- ------- -------
Operating profit (loss) (1,710) (197) 1,346 77 (484) 589 - 105
Other income (expense)
Interest and dividend income 941 - 61 - 1,002 4 - 1,006
Interest expense (98) 73 (1,958) - (1,983) (1,027) - (3,010)
Gain on sales of assets 6,950 (5,149) - - 1,801 - - 1,801
Other 14 - 123 - 137 164 - 301
------- ------- ------- ------- ------- ------- ------- -------
7,807 (5,076) (1,774) - 957 (859) - 98
Earnings (loss) from
continuing operations
before income taxes 6,097 (5,273) (428) 77 473 (270) - 203
Income tax expense
(benefit) 2,069 - - (1,889)(3) 180 - (103)(3) 77
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
continuing operations 4,028 (5,273) (428) 1,966 293 (270) 103 126
Preferred dividend
requirement (176) - - (240)(2) (416) - - (416)
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
continuing operations
allocable to common
stockholders $ 3,852 $(5,273) $ (428) $ 1,726 $ (123) $ (270) $ 103 $ (290)
======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share
from continuing operations $1.08 $(0.06)
Weighted average number of
common and equivalent
shares outstanding 3,551 4,851
</TABLE>
See accompanying explanatory notes.
F-15
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the nine months ended September 30, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
before
American
Pro Forma Care American Pro Forma
Company Wedgwood(5) Adjustments acquisition Care Adjustments Combined
------- ----------- ------------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Assisted living facilities $ 8,898 $ 4,262 $ - $13,160 $10,894 $ - $24,054
Expenses
Assisted living facilities 5,548 3,182 - 8,730 7,077 - 15,807
Lease expense 886 - - 886 1,755 - 2,641
Facility depreciation and
amortization 826 488 (95)(1) 1,219 479 - 1,698
General and administrative 2,400 322 - 2,722 1,519 - 4,241
------- ------- ------- ------- ------- ------- -------
9,660 3,992 (95) 13,557 10,830 - 24,388
------- ------- ------- ------- ------- ------- -------
Operating profit (loss) (762) 270 95 (397) 64 - (333)
Other income (expense)
Interest and dividend
income 674 13 - 687 8 - 695
Interest expense (1,614) (845) - (2,459) (1,309) - (3,768)
Gain on sales of assets 32 - - 32 - - 32
Other (53) 28 - (25) 113 - 88
------- ------- ------- ------- ------- ------- -------
(961) (804) - (1,765) (1,188) - (2,953)
Loss from continuing
operations before
income taxes (1,723) (534) 95 (2,162) (1,124) - (3,286)
Income tax benefit (656) - (167)(3) (823) - (426)(3) (1,249)
------- ------- ------- ------- ------- ------- -------
Loss from continuing operations (1,067) (534) 262 (1,339) (1,124) 426 (2,037)
Preferred dividend
requirement (247) - (80)(2) (327) - - (327)
------- ------- ------- ------- ------- ------- -------
Loss from continuing
operations
allocable to common
stockholders $(1,314) $ (534) $ 182 $(1,666) $(1,124) $ 426 $(2,364)
======= ======= ======= ======= ======= ======= =======
Loss per share from
continuing operations $(0.37) $(0.49)
Weighted average number of
common and equivalent
shares outstanding 3,559 4,859
</TABLE>
See accompanying explanatory notes.
F-16
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed combined financial statements reflect the acquisition
by the Company in March 1996 of substantially all of the assets and
liabilities of a number of companies under common control and managed by
Wedgwood and the proposed acquisition of American Care. The total purchase
price for Wedgwood was $17,223,000, consisting of preferred stock valued at
$16,203,000 and cash and transaction costs totaling approximately $1,020,000.
The preferred stock issued includes 675,000 shares of Series D Preferred
Stock which was issued to James R. Gilley, Chief Executive Officer of the
Company, and members of his family. These shares were valued at Mr. Gilley's
cost in the acquired property of approximately $2,300,000. The consideration
for the proposed acquisition of American Care, which is to be accounted for
as a pooling of interests, is 1,240,000 shares of the Company's common stock.
B. The pro forma financial statements reflect the following adjustments:
1. To reflect the difference in depreciation and amortization on Wedgwood
property and equipment and other assets due to change in asset bases and
lives under purchase accounting using lives from 5 to 35 years; Wedgwood
historically had utilized lives of 5 to 28 years.
2. To reflect the dividend requirement on the Series D Preferred Stock issued
in the acquisition of Wedgwood.
3. To adjust income tax expense based upon applying the statutory tax rate to
pre-tax income. If the Wedgwood acquisition had taken place at January 1,
1994, the deferred tax liabilities arising from the transaction would have
eliminated the need for a change in the deferred tax asset valuation
allowance at that date. Accordingly, there would have been no change in
the valuation allowance during the year ended December 31, 1995 and,
therefore, the effective tax rate would have approximated 38%. The
Company considers the use of its net operating loss carryforwards as a
result of Wedgwood acquisition to be more likely than not.
4. In January 1995, the Company sold The Fountainview. The pro forma
statements of operations reflect the operations of the Company as adjusted
to reflect this disposition.
5. The statement of operations of Wedgwood covers the three months ended
March 31, 1996. Beginning April 1, 1996, Wedgwood operations are
consolidated with the Company.
6. To accrue professional fees, estimated by the Company to be $800,000,
related to the proposed merger with American Care. These expenses as well
as professional fees provided in exchange for options, valued at
approximately $200,000, to purchase shares of the Company's common stock,
have not been reflected in the pro forma combined statements of
operations, but will be included in future statements of operations of
the Company.
7. To reflect the retirement of a $500,000 note payable in exchange for
44,643 shares of the Company's common stock.
F-17
<PAGE>
Report of Independent Accountants
---------------------------------
The Board of Directors
American Care Communities, Inc. and Subsidiaries
We have audited the accompanying combined balance sheet of American Care
Communities, Inc. and Subsidiaries as of December 31, 1995, and the related
combined statements of operations and accumulated deficit, and cash flows for
the years ended December 31, 1995 and 1994. 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 that 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 combined financial position of American Care
Communities, Inc. and Subsidiaries as of December 31, 1995, and the combined
results of their operations and their cash flows for the years ended December
31, 1995 and 1994 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note J to the
financial statements, the Company has suffered recurring losses from operations
and has a stockholders' deficit that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note J. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Coopers & Lybrand L.L.P.
Raleigh, North Carolina
February 16, 1996
F-38
<PAGE>
American Care Communities, Inc. and Subsidiaries
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1995 1996
------------- ------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 423,521 $ 24,421
Resident accounts receivable, net of allowance for
uncollectible accounts $74,193 in 1995 and
$48,829 in 1996 235,625 353,201
Accounts receivable, stockholder 12,000 12,000
Other accounts receivable 257,929 86,542
Prepaid expenses and inventories 70,610 80,774
Deposits 23,060 22,070
Other current assets 325 1,285,228
----------- -----------
Total current assets 1,023,070 1,864,236
Property and equipment, at cost
Land and land improvements 2,071,702 2,435,413
Leasehold improvements 29,219 207,635
Buildings and improvements 9,976,598 9,087,780
Furniture and equipment 1,109,689 1,378,326
Transportation equipment 178,350 183,008
Construction in process 1,377,489 5,214,072
----------- -----------
14,743,047 18,506,234
Less accumulated depreciation and amortization 581,572 911,314
----------- -----------
14,161,475 17,594,920
Deposits 1,007,452 691,591
Goodwill, net of accumulated amortization of $53,431
in 1995 891,206 567,078
Organizational costs, net of accumulated amortization of
$34,519 in 1995 and $47,866 in 1996 65,120 45,180
Deferred financing costs, net of accumulated amortization
of $34,714 in 1995 and $72,010 in 1996 438,332 428,683
Covenant not to compete, net of accumulated amortization
of $20,163 in 1995 89,837 -
Deferred start-up costs - 99,585
Other deferred financing and acquisition costs 307,958 -
----------- -----------
$17,984,450 $21,291,273
=========== ===========
</TABLE>
F-39
<PAGE>
American Care Communities, Inc. and Subsidiaries
COMBINED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
December 31, September 30,
LIABILITIES AND STOCKHOLDERS' DEFICIT 1995 1996
------------- --------------
(unaudited)
<S> <C> <C>
Current liabilities
Current maturities of long-term debt $ 817,925 $ 5,638,545
Notes payable, stockholder - 357,973
Accounts payable, trade 804,878 1,301,411
Accrued expenses 611,830 908,582
Accrued interest 140,824 217,024
Deferred income - 36,775
----------- -----------
Total current liabilities 2,375,457 8,460,310
Notes payable, stockholder 357,974 -
Long-term debt, less current maturities 16,083,705 14,787,917
----------- -----------
16,441,679 14,787,917
Stockholders' deficit
Common stock; no par value; 100,000 shares authorized;
1,000 shares issued and outstanding at December 31, 1995 - -
Additional paid-in capital 1,000 1,000
Accumulated deficit (833,686) (1,957,954)
----------- -----------
Total stockholders' deficit (832,686) (1,956,954)
----------- -----------
$17,984,450 $21,291,273
=========== ===========
</TABLE>
The accompanying notes are an integal part of these statements.
F-40
<PAGE>
American Care Communities, Inc. and Subsidiaries
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
------------------------- -------------------------------
1994 1995 1995 1996
----------- ------------ ------------ -----------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues
Rental income $3,707,698 $6,810,504 $4,773,332 $10,893,631
Other operating income 192,921 596,259 119,473 112,410
Interest income 8,331 22,619 3,826 7,879
---------- ---------- ---------- -----------
Total revenues 3,908,950 7,429,382 4,896,631 11,013,920
Expenses
Residence operating expenses 2,554,300 4,408,662 2,765,280 7,076,688
General and administrative 614,932 1,259,740 867,820 1,519,403
Rent expense 212,100 406,101 208,638 1,754,546
Depreciation and amortization 233,408 483,272 342,056 478,837
Interest expense 540,101 1,447,290 1,027,080 1,308,714
---------- ---------- ---------- -----------
Total expenses 4,154,841 8,005,065 5,210,874 12,138,188
---------- ---------- ---------- -----------
Loss before equity earnings in
investment and loss on
disposal of investment (245,891) (575,683) (314,243) (1,124,268)
Equity earnings in investment - 90,363 44,573 -
Loss on disposal of investment - (39,458) - -
---------- ---------- ---------- -----------
Net loss (245,891) (524,778) (269,670) (1,124,268)
Accumulated deficit at beginning of year (63,017) (308,908) (308,908) (833,686)
---------- ---------- ---------- -----------
Accumulated deficit at end of year $ (308,908) $ (833,686) $ (578,578) $(1,957,954)
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integal part of these statements.
F-41
<PAGE>
American Care Communities, Inc. and Subsidiaries
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
-------------------------------- ---------------------------
1994 1995 1995 1996
---------------- -------------- ------------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (245,891) $ (524,778) $ (269,670) $(1,124,268)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization 233,408 483,272 342,056 478,837
Gain on disposal of property - - - (3,472)
Changes in assets and liabilities
Resident accounts receivable (30,056) (205,569) (31,861) (117,576)
Accounts receivable, stockholder 1,000 (12,000) (12,000) -
Other accounts receivable 8,744 (250,839) 7,090 171,387
Prepaid expenses and inventories (16,275) (31,846) (1,754) (10,164)
Other current assets (13,337) 13,012 13,337 (1,384,488)
Accounts payable, trade 211,979 538,695 (6,660) 496,533
Accrued expenses 151,104 434,889 169,316 296,752
Accrued interest 40,717 78,979 76,486 76,200
Other current liabilities - - 21,417 -
Deferred income (5,200) - - 36,775
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities 336,193 523,815 307,757 (1,083,484)
Cash flows from investing activities
Acquisitions of assets (4,689,528) (7,369,187) (5,111,923) (5,334,715)
Proceeds on sale of property - - - 1,575,000
Disposals of property and equipment 1,000 - - -
Deposits on acquisitions (55,000) 56,988 73,266 8,442
Decrease (increase) in other assets (18,990) (126,782) (1,046,311) 353,503
----------- ----------- ----------- -----------
Net cash used in investing activities (4,762,518) (7,438,981) (6,084,968) (3,397,770)
Cash flows from financing activities
Principal payments on long-term debt (278,515) (9,589,139) (142,455) (1,422,754)
Proceeds from issuance of long-term debt 4,851,757 18,454,937 7,299,597 4,947,586
Deposits on financing obligations (32,500) (1,000,000) (1,000,000) 308,409
Deferred financing and acquisition costs - (781,004) (421,056) 248,913
----------- ----------- ----------- -----------
Net cash provided by financing
activities 4,540,742 7,084,794 5,736,086 4,082,154
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalent 114,417 169,628 (41,125) (399,100)
Cash and cash equivalents
Beginning of year 139,476 253,893 253,893 423,521
----------- ----------- ----------- -----------
End of year $ 253,893 $ 423,521 $ 212,768 $ 24,421
=========== =========== =========== ===========
Supplemental disclosures of cash flow information -
Cash paid during the year for interest $ 499,384 $ 1,368,311 $ 1,002,834 $ 1,419,438
=========== =========== =========== ===========
Noncash investing activities -
Goodwill associated with acquisition (disposition) of assets $ 451,522 $ 493,115 $ 361,766 $ (317,571)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations and Basis of Combination
-----------------------------------
American Care Communities, Inc. and Subsidiaries (the "Company") was founded in
1993 with the mission of developing, acquiring, leasing and operating assisted
living and retirement communities. The Company adheres to a philosophy of
service that views residents as unique, important and valuable.
At December 31, 1995, the Company either owned or operated a total of 14
assisted living residences located in North Carolina and Florida, and managed a
residence located in Maine, in which a stockholder of the Company has a 10%
non-controlling interest.
The combined financial statements at December 31, 1995 include the accounts of
American Care Communities, Inc. and the following wholly-owned subsidiaries;
American Countytime, Inc., Rose Manor of Cary, Inc., American Care Communities
of Sanford, Inc., American Care Communities of Florida, Inc. and
Phoades/Powell, Inc. As permitted by ARB No. 51, the combined financial
statements include the accounts of the following entities, which are affiliated
companies to American Care Communities, Inc. and Subsidiaries, related through
common ownership:
Berne Village, LLC
Graybrier, LLC
Rose Terrace of Wendell, LLC
Rose Tara Plantation, Inc.
Lake James, LLC
RRSP, Inc.
All significant intercompany balances and transactions have been eliminated
from the combined financial statements.
Basis of Presentation
---------------------
The accompanying financial statements have been prepared in accordance with
principles contained in the American Institute of Certified Public Accountants
Audit Guide "Audits of Providers of Health Care Services."
Rental Income
-------------
Rental income is reported at the estimated net realizable value from residents,
third-party payors, and others for services rendered.
The Company provides services to both responsible parties and residents covered
under the North Carolina State Assistance Plan.
F-43
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Concentration of Credit Risk
----------------------------
Financial instruments which potentially subject the Company to a concentration
of credit risk consists principally of cash and cash equivalents and accounts
receivable. The Company places its cash in federally insured financial
institutions which limits its credit exposure. At December 31, 1995, the
Company had $813,430 on deposit with two Federally insured financial
institutions, which exceeds the $100,000 per institution FDIC insurance limit.
The Company has accounts receivable, the collectibility of which is dependent
upon the performance of certain governmental programs. Management does not
believe there are significant credit risks associated with these governmental
programs. With respect to the remaining portion of accounts receivable, an
allowance for uncollectible accounts is provided in an amount equal to the
estimated losses to be incurred in collection of the receivables. The allowance
is based on historical collection experience and a review of the current status
of the existing receivables.
Depreciation and Amortization
-----------------------------
Depreciation and amortization of property and equipment is computed using the
straight-line method. The estimated useful lives of property and equipment are
as follows:
<TABLE>
<S> <C>
Land improvements 5 to 10 years
Leasehold improvements 3 to 7 years
Buildings and improvements 5 to 40 years
Furniture and equipment 3 to 7 years
Transportation equipment 3 to 5 years
</TABLE>
Expenditures for repairs and maintenance are charged to expense as incurred.
The costs of major renewals and betterments are capitalized and depreciated
over their estimated useful lives. Upon disposition of property and equipment,
the cost and related accumulated depreciation amounts are relieved and any
resulting gain or loss is reflected in operations.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on hand and on deposit with banks, as
well as financial instruments with a maturity of 90 days or less when
purchased.
Inventory
---------
The Company values its inventory, consisting principally of food and medical
supplies, at the lower of cost (first-in, first-out) or market.
F-44
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Organizational Costs
--------------------
Organizational costs relate to organizational activities surrounding the
acquisitions of residences and are being amortized on the straight-line method
over five years.
Deposits
--------
Deposits include cash paid in connection with possible acquisitions, deposits
for certain equipment and utilities and cash paid in connection with the
$11,500,000 indebtedness.
Goodwill
--------
Goodwill is being amortized on the straight-line method over a period of
fifteen years.
Deferred Financing Costs
------------------------
Deferred financing costs are being amortized over the terms of the related
borrowings under a method which approximates the effective interest method.
Covenant Not to Compete
-----------------------
Covenant not to compete is being amortized over a period of five years under
the straight-line method.
Other Deferred Financing and Acquisition Costs
----------------------------------------------
Other deferred financing and acquisition costs includes costs incurred for a
proposed capital financing and costs incurred for the acquisition of additional
residences which were not closed at December 31, 1995.
Estimates
---------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
December 31, 1995 and the reported amounts of revenues and expenses during each
of the two years then ended. Actual results could differ from those estimates.
Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. Management estimates that
the carrying value of long-term indebtedness (Note B) approximates fair value
at December 31, 1995.
F-45
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Interim Statements
------------------
In the opinion of management, the unaudited interim financial statements as of
September 30, 1996 and for the nine-month periods ended September 30, 1995 and
1996 include all adjustments, consisting only of those of a normal recurring
nature, necessary to present fairly the Company's financial position as of
September 30, 1996 and the results of its operations and cash flows for the
nine-month periods ended September 30, 1995 and 1996. The results of
operations for the nine months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
NOTE B - LONG-TERM DEBT
<TABLE>
<S> <C>
Long-term debt at December 31, 1995 is summarized as follows:
Prime (8.5% at December 31, 1995) plus .5% to 1% notes payable
in monthly installments of interest only, with final payments in
February 1996 through July 1996 $ 144,421
Prime (8.5% at December 31, 1995) plus .5% to. 75% notes payable in
aggregate monthly installments of $36,906 including interest with
final installments due March 1997 through December 1998,
collateralized by property and equipment 3,254,245
8.99% to 10% notes payable in aggregate monthly installments of $6,802
including interest, with final installments due March 1996 through
February 2000, collateralized by property and equipment 451,484
6.23% to 9.25% notes payable in monthly installments of interest only,
with final installments due in 1996 1,551,480
11.35% mortgage loan payable in monthly installments of interest only
through January 1997 with a final balloon payment in 2007,
collateralized by property and equipment 11,500,000
-----------
16,901,630
Less current maturities 817,925
-----------
$16,083,705
===========
</TABLE>
F-46
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED
NOTE B - LONG-TERM DEBT - CONTINUED
Subsequent to December 31, 1995, the Company refinanced a $1,051,480 note
payable that was due in 1996, with a $5,065,000 construction note payable in
monthly installments of interest only with a final payment of interest and
principal on April 16, 1997. The proceeds of the note are to be used for
construction of Rose Manor of Cary. The note is collateralized by property and
equipment and is guaranteed by certain stockholders of the Company.
Aggregate annual principal maturities of long-term debt at December 31, 1995
are as follows:
<TABLE>
<S> <C>
1996 $ 817,925
1997 1,367,197
1998 1,704,815
1999 286,472
2000 1,753,298
Thereafter 10,971,923
-----------
$16,901,630
===========
</TABLE>
The loan agreements contain various restrictive covenants, including the
requirement the Company submit audited financial statements within a certain
period of time. The Company was not in compliance with one of these covenants
at December 31, 1995, which was subsequently waived by the lender.
Approximately $5,001,072 of the long-term indebtedness at December 31, 1995 is
guaranteed by certain stockholders of the Company.
NOTE C - OPERATING LEASES
The Company leases three residences and office space from unrelated parties and
five residences from a related party (Note D) under operating lease agreements
which expire from July 1997 through January 2010 and has various other
equipment operating leases. The Company has the option to extend the residence
leases for various five year periods. Rental expense under these lease
agreements was $406,101 and $212,100 in 1995 and 1994, respectively. In
accordance with the residence and office space lease agreements, the Company is
responsible for operating and maintaining the buildings in good order, repair
and operating condition, and promptly make all repairs, renewals, replacements,
additions and improvements necessary to maintain the current condition of the
residence.
F-47
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED
NOTE C - OPERATING LEASES - CONTINUED
Future minimum rental payments are summarized as follows:
<TABLE>
<S> <C>
1996 $2,299,888
1997 2,423,795
1998 2,392,851
1999 2,100,220
2000 2,067,678
</TABLE>
NOTE D - EQUITY INVESTMENT
Prior to December 27, 1995, the Company had a 30% non-controlling interest in
Rhoades/Powell, Inc. and 30% non-controlling interest in Powell/Rhoades, LLC.
Powell/Rhoades, LLC owns five residences located in North Carolina. These
residences are leased to Rhoades/Powell, Inc. under a fifteen year operating
lease agreement (Note C). The Company has recorded equity earnings (loss) from
these investments of $148,497 and $(58,134), respectively, for the year ended
December 31, 1995 in the accompanying financial statements. Unaudited
financial information for Rhoades/Powell, Inc. and Powell/Rhoades, LLC for the
361 days ended December 27, 1995 is as follows:
<TABLE>
<CAPTION>
Rhoades/ Powell/
Powell, Inc. Rhoades, LLC
------------ -------------
<S> <C> <C>
Revenues $4,056,105 $1,139,968
Expenses 3,561,115 1,333,749
---------- ----------
Net income (loss) $ 494,990 $ (193,781)
========== ==========
</TABLE>
On December 27, 1995, the Company sold its 30% interest in Powell/Rhoades, LLC
incurring a loss on disposal of $39,458 and purchased the remaining 70%
interest in Rhoades/Powell, Inc.
F-48
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED
NOTE E - INCOME TAXES
The Company accounts for income taxes under the provisions of statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). Under SFAS No. 109, deferred income taxes are determined based on
temporary differences between the financial statement and tax basis of assets
and liabilities, using enacted tax rates expected to be in effect during the
years in which the differences are expected to reverse, and on available tax
credits and carryforwards.
During 1995, the Company incurred a net loss of $524,778, thus, no provision
for income taxes is included in the accompanying financial statements. At
December 31, 1995, the Company had a net deferred tax asset of $194,000,
consisting of the following significant components:
<TABLE>
<S> <C>
Deferred tax asset:
Net operating losses $213,000
Bad debt deduction disallowance 12,500
Tax depreciation (45,000)
Other 13,500
--------
$194,000
========
</TABLE>
The Company has placed a full valuation allowance on the deferred tax asset
since it is more likely than not that the future tax benefit will not be
realized due to the historical losses from operations and going concern
considerations (Note J).
NOTE F - TRANSACTIONS WITH RELATED PARTIES
At December 31, 1995, the Company owed one of its stockholders a total of
$357,974 in non-secured notes payable at annual interest rates of 8%. These
notes are due the earlier of August 15, 1997 or the closing of a private equity
placement and have been classified as long-term liabilities in the accompanying
balance sheet. Included in accrued interest in the accompanying financial
statements is $29,216 and $11,067 in 1995 and 1994, respectively, related to
these notes. Also, included in interest expense is $18,149 and $7,200 in 1995
and 1994, respectively, related to these notes. Included in accounts payable,
trade at December 31, 1995 is $7,660 due to two stockholders of the Company for
expenses incurred on behalf of the Company. Accounts receivable, stockholder
represents a non-interest-bearing advance, due on demand to one of the
stockholders of the Company.
F-49
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED
NOTE G - MANAGEMENT CONTRACT
During 1995, the Company managed an assisted living residence under contractual
agreement. Under the terms of the agreement, the Company was responsible for
supervising the operations of the residence, maintaining appropriate
accounting records and compliance with all pertinent requirements of
contractual agreements. Included in other revenues in the accompanying
financial statements is revenue of $17,500 related to this contract. The
contract expires in December 1999.
NOTE H - PROFESSIONAL LIABILITY INSURANCE
The Company is insured under occurrence-based policies for the purpose of
providing professional liability insurance. These policies cover only claims
occurred during the policy term. Coverage includes policies on professional
liability limited to $1,000,000 per occurrence at each residence and aggregate
coverage of $2,000,000 to $3,000,000 per residence. One residence located in
Florida is insured under a claims-made policy for the purpose of providing
professional liability insurance. This policy covers only claims reported to
the insurance carrier during the policy term. Coverage under this policy
includes professional liability limited to $1,000,000 per occurrence and
aggregate coverage of $1,000,000.
NOTE I - COMMITMENTS
The Company is currently constructing Rose Manor of Cary, Inc., a 72-bed
assisted living residence located in Cary, North Carolina. Construction is
scheduled to be completed in September 1996 at a cost of approximately
$5,000,000.
NOTE J - GOING CONCERN
At December 31, 1995, the Company had a stockholders' deficit of $832,686 and
current liabilities were greater than current assets in the amount of
$1,352,387. In addition, the Company has incurred net losses of $524,778 and
$245,891 for the years ended December 31, 1995 and 1994, respectively, caused,
in part, by the Company's rapid growth. Management is currently evaluating
different financing options including the restructuring of current debt
agreements and capital investment from outside parties through which it
believes the Company can continue its growth. Should management be unable to
execute such an arrangement or reduce its operating expenses in line with its
revenues it would raise substantial doubt about the Company's ability to
continue as a going concern.
F-50
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED
NOTE K - SUBSEQUENT EVENTS (UNAUDITED)
Acquisitions
------------
Effective January 1, 1996, the following entities were acquired as wholly-owned
subsidiaries of American Care Communities, Inc.:
Berne Village, Inc. (formerly Berne Village, LLC)
Graybrier, Inc. (formerly Graybrier, LLC)
Rose Terrace of Wendell, Inc. (formerly Rose Terrace of Wendell, LLC)
Lake James, Inc. (formerly Lake James Acquisition, LLC)
Rose Tara Plantation, Inc.
RRSP, Inc.
Commitments
-----------
The Company has entered into a contractual commitment for the purchase of a 55-
bed residence located in South Carolina for $2,250,000.
Disposal of Residence
---------------------
On August 1, 1996, the Company sold the assets of Lake James, Inc. for
$1,575,000. Approximately $175,000 of the proceeds were used for working
capital and closing costs and the remaining $1,400,000 has been escrowed for
capital improvements at Berne Village, Inc., Graybrier, Inc. and Rose Tara
Plantation, Inc.
Stock Options
-------------
Effective March 6, 1996, the Company adopted an incentive stock option plan
under Section 422 of the Internal Revenue Code. The plan reserves 50 shares of
common stock for the benefit of key employees. At May 29, 1996, 39 shares had
been granted, none of which had been exercised. Options under this plan are
exercisable at no less than fair market value at the date of grant and vest
ratably over a three-year period. All unexercised options expire three years
from the date of grant.
401(k) Plan
-----------
Effective January 1, 1996, the Company adopted the American Care Communities
401(k) Plan (the "Plan") which requires contributions each year from the
Company equal to 50% of the first 6% of the participants annual contribution to
the Plan. Any additional Company contribution to the Plan is at the discretion
of the Company's Board of Directors. The company may terminate the Plan at any
time. Upon termination, participants would become fully vested in all Company
contributions and Plan earnings.
F-51
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
NOTE K - SUBSEQUENT EVENTS (UNAUDITED) - CONTINUED
Proposed Merger
---------------
On September 16, 1996, the Company began merger discussions with Greenbriar
Corporation ("Greenbriar") and entered into an Agreement and Plan of Merger on
November 21, 1996. Pursuant to the Agreement, the Company will be merged with
and into a wholly-owned subsidiary of Greenbriar in exchange for 1,300,000
shares of Greenbriar's common stock at an agreed value of $16 per share. The
closing of the merger is subject to shareholder approval and is expected to
occur on December 30, 1996.
In connection with the proposed merger, in September 1996, the Company wrote-
off $400,809 of deferred financing costs associated with previously proposed
capital financings for the Company, of which $292,502 was included in other
deferred financing and acquisition costs at December 31, 1995.
F-52
