UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8187
GREENBRIAR CORPORATION
(Exact name of Registrant as specified in its charter)
NEVADA 75-2399477
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
4265 KELLWAY CIRCLE, ADDISON, TEXAS 75001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 407-8400
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
------------------- -------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES [X] NO [ ]
At August 11, 2000, the issuer had outstanding approximately 7,011,000 shares of
par value $.01 Common Stock.
<PAGE>
GREENBRIAR CORPORATION
Index to Quarterly Report on Form 10-Q
Period ended June 30, 2000
PART I: FINANCIAL INFORMATION.................................................3
Item 1: Financial Statements...............................................3
Consolidated Balance Sheets..............................................3
Consolidated Statements of Operations....................................5
Consolidated Statements of Cash Flow.....................................6
Notes to Consolidated Financial Statements...............................7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................11
Three and Six Month Periods Ended June 30, 2000 Compared to
Three and Six Month Periods Ended June 30, 1999..............12
Effect of Inflation.....................................................15
Forward Looking Statements..............................................15
PART II: OTHER INFORMATION...................................................16
2
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
GREENBRIAR CORPORATION
Consolidated Balance Sheets
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash And Cash Equivalents $ 2,387 $ 8,814
Accounts Receivable-Trade 531 182
Other Current Assets 1,421 848
-------- --------
Total Current Assets 4,339 9,844
Deferred Income Tax Benefit 4,750 4,750
Mortgage Note Receivable, Net Of
Deferred Gain Of $3,083 -- 3,617
Property And Equipment, At Cost
Land And Improvements 9,943 11,179
Buildings And Improvements 75,526 76,848
Equipment And Furnishings 6,677 6,586
-------- --------
92,146 94,613
Less Accumulated Depreciation 10,950 9,888
-------- --------
81,196 84,725
Deposits 4,106 3,907
Goodwill And Other Intangibles 9,299 10,439
Other Assets 1,134 2,626
-------- --------
$104,824 $119,908
======== ========
</TABLE>
3
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GREENBRIAR CORPORATION
Consolidated Balance Sheets - Continued
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Current Liabilities
Current Maturities Of Long-Term Debt $ 2,548 $ 3,317
Accounts Payable - Trade 216 2,072
Accrued Expenses 1,638 1,345
Other Current Liabilities 992 678
--------- ---------
Total Current Liabilities 5,394 7,412
Long-Term Debt 50,196 50,477
Financing Obligations 10,815 10,815
Other Long Term Liabilities 1,009 721
--------- ---------
Total Liabilities 67,414 69,425
Preferred Stock Redemption Obligation 24,791 27,763
Stockholders' Equity
Preferred Stock 257 289
Common Stock $.01 Par Value; Authorized, 20,000
Shares; Issued And Outstanding, 7,514 Shares 76 76
Additional Paid-In Capital 61,863 61,520
Accumulated Deficit (47,210) (36,798)
--------- ---------
14,986 25,087
Less Stock Purchase Notes Receivable
(Including $2,250 From Related Parties) (2,367) (2,367)
--------- ---------
12,619 22,720
--------- ---------
$ 104,824 $ 119,908
========= =========
</TABLE>
4
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GREENBRIAR CORPORATION
Consolidated Statements Of Operations
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For The Three Month For The Six Month
Period Ended Period Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
---------- ---------- --------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue
Assisted living operations $ 10,319 $ 10,292 $ 20,841 $ 20,451
-------- -------- -------- --------
10,319 10,292 20,841 20,451
Operating Expenses
Assisted living community
operations $ 6,141 $ 6,201 $ 12,397 $ 12,295
Lease expense 1,254 1,295 2,542 2,580
Depreciation and amortization 964 1,012 1,943 2,026
Corporate general and
administrative 1,065 1,163 2,177 2,258
Write-off of impaired assets
and related expenses 7,461 -- 7,461 --
-------- -------- -------- --------
16,885 9,671 26,520 19,159
-------- -------- -------- --------
Operating income (loss) (6,566) 621 (5,679) 1,292
Other income (expense)
Interest and dividend income $ 101 $ 155 $ 216 $ 313
Interest expense (1,419) (1,428) (2,810) (2,867)
Gain (loss) on the sale of assets (34) -- 74 --
Other (72) 76 (140) 221
-------- -------- -------- --------
(1,424) (1,197) (2,660) (2,333)
-------- -------- -------- --------
Loss before income taxes (7,990) (576) (8,339) (1,041)
Income tax benefit -- -- -- --
-------- -------- -------- --------
Net loss (7,990) (576) (8,339) (1,041)
Preferred stock dividend
requirement (1,028) (1,177) (2,075) (2,346)
Loss allocable to common
stockholders (9,018) (1,753) (10,414) (3,387)
======== ======== ======== ========
Net loss per common share -
basic and diluted $ (1.20) $ (0.24) $ (1.39) $ (.46)
Weighted average number
of common and equivalent
shares outstanding 7,514 7,275 7,514 7,275
</TABLE>
5
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GREENBRIAR CORPORATION
Consolidated Statements Of Cash Flow
(Amounts in thousands)
<TABLE>
<CAPTION>
For the six month
Period Ended June 30,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $(8,339) $(1,041)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 1,943 2,026
Gain on sale of assets (74) --
Write-off of impaired assets and related expenses 7,461 --
Changes in operating assets and liabilities
Accounts receivable (350) (57)
Other current and noncurrent assets (745) 131
Accounts payable and other liabilities (959) (1,072)
------- -------
Net cash used in operating activities (1,063) (13)
------- -------
Cash flows used in investing activities
Proceeds from sale of property 645 1,010
Purchase of property and equipment (824) (460)
------- -------
Net cash provided by (used in) investing
Activities (179) 550
Cash flows from financing activities
Proceeds from borrowings -- 160
Payments on debt (450) (1,670)
Dividends on preferred stock (735) (815)
Redemption of preferred stock (4,000) --
Distributions to minority partners -- (151)
------- -------
Net cash used in financing
activities (5,185) (2,476)
------- -------
NET DECREASE IN CASH AND (6,427) (1,939)
CASH EQUIVALENTS
Cash and cash equivalents at beginning of period 8,814 6,024
------- -------
Cash and cash equivalents at end of period $ 2,387 $ 4,085
======= =======
</TABLE>
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE UNAUDITED THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Greenbriar Corporation and its majority-owned subsidiaries
(collectively, "the Company"). All significant intercompany transactions and
accounts have been eliminated.
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and, accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles.
These financial statements have not been 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 three and six month periods ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999.
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NOTE B: LONG-TERM OBLIGATIONS
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Notes payable to financial institutions maturing through 2018; fixed and
variable interest rates ranging from 7.5% to 11.75%; collateralized by
property, fixtures, equipment and the
assignment of rents $25,411 $25,681
Notes payable to individuals and companies maturing through 2022; variable and
fixed interest rates ranging from 7% to 12% collateralized by real
property, personal property, fixtures, equipment and the assignment of rents 4,499 4,572
Note payable to the Redevelopment Agency of the City of Corona, California,
payable into a sinking fund semi-annually in increasing amounts from $65 to
$420 through May 1, 2015; variable interest rate of 5.55% at June 30, 2000;
collateralized by personal property, land, fixtures and rents 7,005 7,110
Mortgage note payable to a financial institution maturing in 2003; bearing
interest at 9.59%; collateralized by property and equipment 13,972 13,972
Other 1,857 2,459
------- -------
52,744 53,794
Less: current maturities 2,548 3,317
------- -------
$50,196 $50,477
</TABLE>
The Company operates two communities that are financed through sale-leaseback
obligations. At the end of the tenth year of the fifteen-year leases (March 31,
2004), the Company has options to repurchase the communities for the greater of
the sales prices or their current replacement costs less depreciation plus land
at current fair market values. Accordingly, these transactions have been
accounted for as financings, and the Company has recorded the proceeds from the
sales as financing obligations, classified the lease payments as interest
expense and continues to carry the communities and record depreciation.
8
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NOTE C: PREFERRED STOCK
The following summarizes the various classes of preferred stock (amounts in
thousands except per share data):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Series B cumulative convertible preferred stock, $.10 par value; liquidation
value of $100; authorized, 100 shares; issued and outstanding, 1 share $ 1 $ 1
Series D cumulative convertible preferred stock, $.10 par value; liquidation
value of $3,375; authorized, issued and outstanding, 675 shares 68 68
Series F voting cumulative convertible preferred stock, $.10 par value;
liquidation value of $14,000; authorized, issued and outstanding, 1,400 140 140
Series G cumulative convertible preferred stock, $.10 par value; liquidation
value of $4,800 at June 30, 2000; authorized, issued and outstanding,
480 shares at June 30, 2000 and 800 shares at December 31, 1999 48 80
-----------------------------------
$257 $289
===================================
</TABLE>
The Series B preferred stock has a liquidation value of $100 per share and is
convertible into common stock over a ten-year period at prices escalating from
$25.00 per share in 1993 to $55.55 per share by 2001. Dividends, at a rate of
6%, are payable in cash or preferred shares at the option of the Company.
The Series D preferred stock has a liquidation value of $5 per share and is
convertible into common stock at $10.00 per share. Cumulative dividends are
payable in cash at a rate of 9.5%.
The Series F voting preferred stock has a liquidation value of $10.00 per share
and each share is convertible into .57 shares of common stock. The Series F
Shareholders have the rights, as a class, to elect one member of the Company's
board of directors and to approve or reject certain transactions, including any
mergers or spin-offs involving the Company. The holder has the option to convert
beginning in January 2000 and must convert by January 2001. Dividends are
payable in cash at a rate of 6%.
The Series G preferred stock has a liquidation value of $10.00 per share and
each share is convertible into .57 shares of common stock. The holder has the
option to convert beginning in January 2000 and must convert by January 2001.
Dividends are payable in cash at a rate of 6%.
9
<PAGE>
The Series F and Series G preferred shares were sold to one investor in December
1997, for $22,000,000, less selling and offering costs of $716,000. In
connection with the sale, the Company entered into an agreement which provides
that, on the date of conversion, if the value of the Company's common stock has
not increased at an annual rate of at least 14% during the period the preferred
shares are outstanding, the Company is required to make a Cash Payment to the
preferred stockholders equal to the market price deficiency on the shares
received upon conversion.
See ITEM 2, LIQUIDITY AND CAPITAL RESOURCES for additional information regarding
Series F and G preferred shareholders.
NOTE D: WRITE-OFF OF IMPAIRED ASSETS AND RELATED EXPENSES
At June 30, 2000 the Company recorded a write-off of impaired assets and related
expenses of $7,461,000.
In 1992 the Company sold four nursing homes to Southern Care Corporation and a
subsidiary of the Company entered into a management agreement to manage the
nursing homes. In 1994 Southern Care terminated the management agreement and
informed the Company that they believed the notes due to the Company from the
sale of the nursing homes in 1992 were invalid. The matter has been in the
courts since 1995 and legal issues were resolved in June 2000 when Greenbriar
was awarded a judgment of $18,688,000 for the notes, interest, amounts due for
the management contract and reimbursement of legal fees. The assets had a
recorded value of $4,525,000.
The Company was informed that the financial condition of the four nursing homes
had deteriorated, that they failed to make the mortgage payment, and that the
first mortgage holder foreclosed on the property in June 2000. The Company is
actively pursuing collection of its judgment from Southern Care as well as from
its officers, directors and a third party trustee. However, under the
circumstances the Company is writing off the entire $4,525,000. (See Legal
Proceedings for more information regarding Southern Care Corporation)
The Company has decided to dispose of two assisted living communities, which are
not meeting operating performance expectations. These communities have been
written down to net realizable value. Also, a third community whose operations
have deteriorated has been written down based on management's estimate of future
cash flows pursuant to the provisions of Statement of Financial Accounting
Standards No. 121. In addition certain receivables associated with these
properties have been written off. These write offs substantially account for the
remainder of the write-off of impaired assets and related expenses.
10
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
During 1994 the Company began a series of steps to focus its business on the
development, management and ownership of assisted living communities. The
Company's historical businesses during the past five years have included
ownership and operation of skilled nursing and retirement centers, real estate
investments and manufacture and leasing of electric convenience vehicles and
wheelchairs. The nursing and retirement centers and convenience vehicle
businesses have been sold and the real estate investments have been liquidated.
The Company began to develop its assisted living business in 1994, began
construction of its first assisted living community in July 1995, and opened
that community to residents on May 30, 1996. In order to increase the Company's
presence in the assisted living industry, create geographic diversity and obtain
experienced personnel the Company acquired Wedgwood Retirement Inns, Inc.
(Wedgwood) in March 1996, American Care Communities, Inc. (American Care) in
December 1996, Windsor Group LLC (Windsor) in October 1997 and Villa Residential
Care Homes, Inc. (Villa) in December 1997. At December 31, 1997 the Company
operated 55 communities that were owned, leased or managed for third parties.
During the third quarter of 1998 the Company made several strategic decisions as
to its future direction. It was decided that the Company redirect itself with
the following objectives:
o Terminate existing management contracts under which the Company
managed communities for a fee. As of January 1, 1998 the company had
two such contracts.
o Reduce the percentage of residents in the Company's communities who
were dependent on direct assistance from governmental agencies for
payment of their fees. As of January 1, 1998 approximately 50% of the
residents at the Company's communities received government assistance.
o Move toward direct ownership of the communities operated by the
Company as opposed to long-term lease arrangements. As of January 1,
1998 approximately 50% of the Company's communities were operated
under long-term lease arrangements.
o Divestiture of communities with limited future profit potential or
geographic locations that were isolated from other Company operations.
As of June 30, 2000 the Company had terminated its management contracts to
manage for others and reduced to 29 the number of communities that it operated.
In 1999 the Company disposed of two communities. In the first quarter of 2000
the Company did not renew a lease on a third community. The Company owns or has
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current options to purchase all but five of its communities. The percentage of
residents who are private pay is approximately 90%.
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000 COMPARED TO THREE AND SIX MONTH
PERIODS ENDED JUNE 30, 1999.
REVENUES AND OPERATING EXPENSES FROM ASSISTED LIVING OPERATIONS
Revenues were $10,319,000 and $20,841,000 for the three and six months ended
June 30, 2000 as compared to $10,292,000 and $20,451,000 for the three and six
months ended June 30, 1999. Community operating expenses, which consist of
assisted living community expenses, lease expense and depreciation and
amortization, were $8,359,000 and $16,882,000 for the three and six months ended
June 30, 2000 as compared to $8,508,000 and $16,901,000 for the three and six
months ended June 30, 1999. While the Company has three less communities in the
first six months of 2000 than it did the same period of 1999, the revenue and
operating expenses have remained consistent due to an increase in both census
and average rental rates at the remaining twenty-nine communities.
WRITE-OFF OF IMPAIRED ASSETS AND RELATED EXPENSES
For the three and six months ended June 30, 2000 the Company recorded a
write-off of impaired assets and related expenses of $7,461,000.
In 1992 the Company sold four nursing homes to Southern Care Corporation and a
subsidiary of the Company entered into a management agreement to manage the
nursing homes. In 1994 Southern Care terminated the management agreement and
informed the Company that they believed the notes due to the Company from the
sale of the nursing homes in 1992 were invalid. The matter has been in the
courts since 1995 and legal issues were resolved in June 2000 when Greenbriar
was awarded a judgment of $18,688,000 for the notes, interest, amounts due for
the management contract and reimbursement of legal fees. The assets had a
recorded value of $4,525,000.
The Company was informed that the financial condition of the four nursing homes
had deteriorated, that they failed to make the mortgage payment, and that the
first mortgage holder foreclosed on the property in June 2000. The Company is
actively pursuing collection of its judgment from Southern Care as well as from
its officers, directors and a third party trustee. However, under the
circumstances the Company is writing off the entire $4,525,000. (See Legal
Proceedings for more information regarding Southern Care Corporation)
The Company has decided to dispose of two assisted living communities, which are
not meeting operating performance expectations. These communities have been
written down to net realizable value. Also, a third community whose operations
have deteriorated has been written down based on management's estimate of future
cash flows pursuant to the provisions of Statement of Financial Accounting
Standards No. 121. In addition certain receivables associated with these
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properties have been written off. These write offs substantially account for the
remainder of the write-off of impaired assets and related expenses.
INTEREST AND DIVIDEND INCOME
Interest and dividend income for the three and six months ended June 30, 2000
was $101,000 and $216,000 compared to $155,000 and $313,000 for the comparable
periods in 1999. In the fourth quarter of 1999 the Company disposed of a
preferred stock investment in another company that generated quarterly dividends
in 1999. The decrease in interest and dividend income in 2000 is due to the
absence of the dividend income from the preferred stock investment and less cash
available for investment purposes.
INTEREST EXPENSE
Interest expense for the three and six months ended June 30, 2000 was $1,419,000
and $2,810,000 compared to $1,428,000 and $2,867,000 for the comparable period
in 1999. The decrease in interest expense is reflective of the sale of two owned
communities in 1999.
GAIN ON THE SALE OF ASSETS
The gain (loss) on the sale of assets for the three and six months ended June
30, 2000 was ($34,000) and $74,000. The loss in the three-month period ended
June 30, 2000 is attributable to the sale of undeveloped land that did not fit
into the Company's strategic plans. There was also a sale of undeveloped land
that did not fit into the Company's strategic plans in the first quarter of 2000
that resulted in a gain of $108,000.
OTHER INCOME (EXPENSE)
Other income (expense) for the three and six months ended June 30, 2000, was
($72,000) and ($140,000) compared to $76,000 and $221,000 for the same periods
in 1999. The expense for the three and six months ended June 30, 2000 is
attributable to a minority interest. The income for the three and six months
ended June 30, 1999 is a result of a favorable settlement with a former employee
regarding an employment agreement that was accrued for in 1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had a working capital deficit of $1,055,000.
In December 1997 the Company sold Series F and Series G preferred shares for
$22,000,000 less selling and offering costs of $716,000.
In connection with the sale, the Company entered into an agreement which
provides that, on the date of conversion, if the value of the Company's common
stock has not increased at the annual rate of at least 14% during the period the
preferred shares are outstanding, the Company is required to make a cash payment
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("Cash Payment") to the preferred stockholders equal to the market price
deficiency on the shares received upon conversion.
The 14% guaranteed return is being accreted by a charge to accumulated deficit.
The amount of the Cash Payment that would be required assuming conversion at
each balance sheet date will be transferred from stockholders equity to
temporary equity. At June 30, 2000, a Cash Payment of $24,791,000 would have
been due assuming conversion took place.
In 2000 the Company made payments totaling $4,000,000 to redeem a portion of the
preferred stock.
In conjunction with the $4,000,000 payment noted above, Greenbriar and the
preferred stockholders have an agreement whereby Greenbriar would redeem the
Series F and G preferred stock from proceeds generated from the sale or
refinancing of certain assets. The original agreement provides the Series F and
G preferred stockholders the option to convert beginning January 2000.
Management of Greenbriar believes that the preferred stockholders have no plans
to exercise their early conversion rights; however, there can be no assurance
that such an event will not occur.
The Company is proceeding with a plan to refinance its existing portfolio of
communities. At current interest rates and property values the Company believes
it can refinance its existing communities and, if necessary, also sell certain
Communities and obtain sufficient cash to meet the potential Cash Payment. In
addition the Company will seek out additional third party financing. While the
Company believes it will be able to meet any potential Cash Payment requirement
there can be no assurance that the Company's plan will be successful.
At June 30, 2000 and since the date of issuance of the Series F and G preferred
stock, the Company was not in compliance with one of the financial ratio
covenants of the stock purchase agreement. The Company believes this situation
stems from a computational mistake that was made at the time this particular
ratio test was originally determined.
The Company has brought this mistake to the attention of the representative of
the preferred shareholder and anticipates that the ratio will be modified to
reflect the original intentions of the parties. The representatives have not
indicated to the Company that they consider that a default has occurred.
However, an event of default (1) permits the holder to elect a number of persons
to the board of directors that will constitute 70% of the board, (2) gives the
holder, upon giving the Company written notice of an event of default, the right
(Put Right) to require the Company to repurchase, "out of funds legally
available therefor," any or all of the preferred stock for an amount equal to
the liquidation value ($22,000,000 in the aggregate) plus accumulated but unpaid
dividends, plus a premium of 20%, and (3) entitles the holder to additional
dividends of $1.20 per share (an aggregate of $660,000 per quarter). Any
additional dividends paid pursuant to this provision would reduce the amount of
the Cash Payment resulting from the aforementioned 14% guaranteed return.
Future development activities of the Company are dependent upon obtaining
capital and financing through various means, including financing obtained from
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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.
EFFECT OF INFLATION
The Company's principal sources of revenues are from resident fees from
Company-owned or leased assisted living communities and management fees from
communities operated by the Company for third parties. The operation of the
communities is affected by rental rates that are highly dependent upon market
conditions and the competitive environment in the areas where the communities
are located. Compensation to employees is the principal cost element relative to
the operations of the communities. Although the Company has not historically
experienced any adverse effects of inflation on salaries or other operating
expenses, there can be no assurance that such trends will continue or that
should inflationary pressures arise that the Company will be able to offset such
costs by increasing rental rates or management fees.
FORWARD LOOKING STATEMENTS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: A number of the matters and subject areas discussed in this form 10Q that
are not historical or current facts deal with potential future circumstances,
operations, and prospects. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may materially differ from Greenbriar
Corporation's actual future experience involving any one or more of such matters
and subject areas relating to interest rate fluctuations, ability to obtain
adequate debt and equity financing, demand, pricing, competition, construction,
licensing, permitting, construction delays on new developments contractual and
licensure, and other delays on the disposition, transition, or restructuring of
currently or previously owned, leased or managed communities in the Company's
portfolio, and the ability of the Company to continue managing its costs and
cash flow while maintaining high occupancy rates and market rate assisted living
charges in its assisted living communities. Greenbriar Corporation has attempted
to identify, in context, certain of the factors that they currently believe may
cause actual future experience and results to differ from Greenbriar
Corporation's current expectations regarding the relevant matter of subject
area. These and other risks and uncertainties are detailed in the Company's
reports filed with the Securities and Exchange Commission (SEC), including
Greenbriar Corporation's Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q.
15
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PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
SOUTHERN CARE CORP V GREENBRIAR ET AL.
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 sought damages exceeding $1,500,000 related to the management and
operations of four nursing homes the Company sold to the plaintiff. The Company
had filed a counterclaim for breach of the management contract between the homes
and a Company subsidiary.
In a matter before the same court the plaintiff and the Company, in 1995, each
filed for summary judgment as to whether a $6,700,000 indebtedness had been
discharged. On December 3, 1997 the Georgia Court of Appeals granted
Greenbriar's motion for summary judgment where they determined that the
indebtedness had not been discharged. In February 1998 the Georgia Supreme Court
refused to hear the matter. The plaintiff subsequently asked the Superior Court
to review the matter again.
On June 19, 2000 the Superior Court of Chatham County entered a judgment whereby
all the claims by the plaintiff were dismissed with prejudice and any and all
pending motions filed by the plaintiff in these cases were denied. The court
further ruled that Greenbriar was entitled to the $6,700,000 indebtedness plus
interest thereon, unpaid management fees and attorney's fees. The judgment
totaled $18,688,000. (See Management Discussions)
LIFESTYLES, SENIOR HOUSING MANAGERS, LLC V. GREENBRIAR ET AL
In 1995 Lifestyles Senior Housing Managers, LLC (Lifestyles) entered into a
contract to manage an assisted living community in Seaside, OR named Neawanna By
the Sea (Neawanna). In March 2000 Lifestyles organized and held a meeting with
the executive director of Neawanna for the purpose of offering her the position
of manager of an assisted living community not affiliated with Greenbriar.
Greenbriar believes the action of Lifestyles represented a breach of their
fiduciary duty as the manager and terminated the management contract. Lifestyles
believes their termination was unjustified, seeks damages of $976,151 and has
requested the matter be submitted to binding arbitration, which is called for in
the management contract. The arbitration is currently scheduled to be heard in
the fall of 2000.
K. W. ENTERPRISES V. GREENBRIAR ET AL.
In K. W. Enterprises v. Greenbriar et al Civil Action # 00 CVS 05989 the
plaintiff is alleging that it has a lease to a subsidiary of Greenbriar to
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operate an assisted living community in Wendell, North Carolina and that
subsidiary failed to pay several months rent as well real estate taxes for 1999.
In November 1998 a subsidiary of Greenbriar entered into an agreement whereby an
affiliate of Abaris Care, Inc. (Abaris), an independent third party, would
attempt to assume the Wendell lease and release Greenbriar and, until approved
by the landlord, sub-lease Wendell under the same terms as Greenbriar. Abaris
immediately began operating the property and paying the real estate taxes as
well as the monthly lease payments. As of November 1998 the Company had no
further association with the property. The plaintiff did not approve the
assignment of the lease but was aware of the transaction and did not object.
Further the plaintiff received and accepted all lease payments directly from
Abaris without objection.
Abaris failed to pay the 1999 real estate taxes of approximately $ 14,500 and
failed to pay the April and May 2000 lease payments of $64,654. On or about May
28, 2000 the plaintiff exercised self-help and seized control of the property.
The plaintiff has filed this lawsuit against Abaris and Greenbriar seeking
recovery of these delinquencies and lease payments on the property through
November 30, 2010.
Greenbriar believes to the extent it is liable for any damages those damages
were mitigated by the self-help actions of the plaintiff. Further, Greenbriar
believes that to the extent it is liable for any damages it has a cause of
action against affiliates of Abaris to recover those damages.
The Company has been named as defendant in other lawsuits in the ordinary course
of business. Management is of the opinion that these lawsuits will not have a
material effect on the financial condition of the Company.
ITEMS 2-4: ARE NOT APPLICABLE.
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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 11, 2000 By: /s/ Gene S. Bertcher
--------------------
Executive Vice President
Chief Financial Officer
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