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, 2001
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.)
14185 Dallas Parkway, Suite 650, Dallas, TX 75254
(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 14, 2001 the issuer had outstanding approximately 8,320,000 shares of
par value $.01 Common Stock.
GREENBRIAR CORPORATION
Index to Quarterly Report on Form 10-Q
Period ended June 30, 2001
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
Part II: Other Information....................................................16
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Greenbriar Corporation
Consolidated Balance Sheets
(Amounts in thousands)
June 30, December 31,
Assets 2001 2000
(Unaudited)
Current Assets
Cash And Cash Equivalents $ 2,941 $ 2,287
Accounts Receivable-Trade 396 470
Other Current Assets 1,594 1,105
-------- --------
Total Current Assets 4,931 3,862
Deferred Income Tax Benefit 4,750 4,750
Notes Receivable, Net of Deferred
--
Gain of $3,720 310
Property And Equipment, At Cost
Land And Improvements 9,164 9,716
Buildings And Improvements 69,668 75,723
Equipment And Furnishings 6,177 6,615
-------- --------
85,009 92,054
Less Accumulated Depreciation 12,564 12,410
-------- --------
72,445 79,644
Deposits 3,603 3,834
Goodwill And Other Intangibles 5,040 9,347
Other Assets 1,098 1,151
-------- --------
$ 92,177 $102,588
======== ========
3
Greenbriar Corporation
Consolidated Balance Sheets - Continued
(Amounts in thousands)
June 30, December 31,
Liabilities And Stockholders' Equity 2001 2000
(Unaudited)
Current Liabilities
Current Maturities Of Long-Term Debt $ 2,664 $ 2,538
Accounts Payable - Trade 868 1,445
Accrued Expenses 960 1,934
Other Current Liabilities 705 668
--------- ---------
Total Current Liabilities 5,197 6,585
Long-Term Debt 43,759 50,887
Financing Obligations 10,815 10,815
Other Long Term Liabilities 811 657
--------- ---------
Total Liabilities 60,582 68,944
Preferred Stock Redemption Obligation 27,167 26,988
Stockholders' Equity
Preferred Stock 69 254
Common Stock $.01 Par Value; Authorized,100,000
Shares; Issued And Outstanding, 8,348 Shares 84 76
And 7,514 Shares, Respectively
Additional Paid-In Capital 60,214 60,219
Accumulated Deficit (53,572) (51,526)
--------- ---------
6,795 9,023
Less Stock Purchase Notes Receivable
(Including $2,250 From Related Parties) (2,367) (2,367)
--------- ---------
4,428 6,656
--------- ---------
$ 92,177 $ 102,588
========= =========
4
Greenbriar Corporation
Consolidated Statements Of Operations
(Amounts in thousands, except per share data)
For The Three Month For The Six Month
Period Ended Period Ended
June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- --------
(Unaudited) (Unaudited)
Revenue
Assisted living operations $ 9,247 $ 10,319 $ 19,223 $ 20,841
-------- -------- -------- --------
9,247 10,319 19,223 20,841
Operating Expenses
Assisted living community
operations $ 5,722 $ 6,141 $ 11,726 $ 12,397
Lease expense 923 1,254 2,077 2,542
Depreciation and amortization 794 964 1,659 1,943
Corporate general and
administrative 1,948 1,065 3,132 2,177
Write-off of impaired assets
and related expenses
-- 7,461 -- 7,461
-------- -------- -------- --------
9,387 16,885 18,594 26,520
-------- -------- -------- --------
Operating income (loss) (140) (6,566) 629 (5,679)
Other income (expense)
Interest and dividend income $ 64 $ 101 $ 141 $ 216
Interest expense (1,252) (1,419) (2,674) (2,810)
Net gain (loss) on the sale of
assets (222) (34) 159 74
Other (61) (72) (142) (140)
-------- -------- -------- --------
(1,471) (1,424) (2,516) (2,660)
-------- -------- -------- --------
Loss before income taxes (1,611) (7,990) (1,887) (8,339)
Income tax benefit -- -- -- --
-------- -------- -------- --------
Net loss (1,611) (7,990) (1,887) (8,339)
Preferred stock dividend
requirement (80) (1,028) (160) (2,075)
-------- -------- -------- --------
Loss allocable to common
stockholders (1,691) (9,018) (2,047) (10,414)
======== ======== ======== ========
Net loss per common share -
basic and diluted $ (0.20) $ (1.20) $ (0.24) $ (1.39)
Weighted average number
of common and equivalent
shares outstanding 8,348 7,514 8,348 7,514
5
Greenbriar Corporation
Consolidated Statements Of Cash Flow
(Amounts in thousands)
For the six month
Period Ended June 30,
2001 2000
------- -------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss $(1,887) $(8,339)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 1,659 1,943
Gain on sale of assets (159) (74)
Write-off of impaired assets and related expenses -- 7,461
Changes in operating assets and liabilities
Accounts receivable 74 (350)
Other current and noncurrent assets (207) (745)
Accounts payable and other liabilities (1,360) (959)
------- -------
Net cash used in operating activities (1,880) (1,063)
------- -------
Cash flows used in investing activities
Proceeds from sale of property 7,550 645
Purchase of property and equipment (477) (824)
------- -------
Net cash provided by (used in) investing
activities 7,073 (179)
Cash flows from financing activities
Payments on debt (4,379) (450)
Dividends on preferred stock (160) (735)
Redemption of preferred stock -- (4,000)
------- -------
Net cash used in financing
activities (4,539) (5,185)
------- -------
NET INCREASE (DECREASE) IN CASH AND 654 (6,427)
CASH EQUIVALENTS
Cash and cash equivalents at beginning of period 2,287 8,814
------- -------
Cash and cash equivalents at end of period $ 2,941 $ 2,387
======= =======
6
Notes To Consolidated Financial Statements
For the Unaudited Three and Six Months Ended June 30, 2001 and 2000
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, 2001 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2001. 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, 2000.
Note B: Notes Receivable
A portion of the consideration received for the sale of Oak Park Retirement and
Wedgwood Terrace (see Note E: Dispositions) was $4,030,000 of tax -free notes
bearing interest of 9.5% annually. The notes mature on April 1, 2002 and June 1,
2002 respectively. It is anticipated that any unpaid principal and interest due
upon maturity will be refinanced for a 35 year period.
The repayment of the notes is limited to the cash flow of the respective
communities either from operations or a subsequent sale. In accordance with the
rules issued by the Statement of Financial Accounting Standards No. 66, the gain
pertaining to $3,720,000 of the notes has been deferred until the Company
receives payment.
7
Note C: Long-Term Obligations
Long-term debt is comprised of the following (in thousands):
June 30, December 31,
2001 2000
---- ----
Notespayable to financial institutions maturing through 2018; fixed and
variable interest rates ranging from 7.5% to 11%; collateralized by
property, fixtures, equipment and the
assignment of rents $25,201 $27,991
Notespayable to individuals and companies maturing through 2022; variable and
fixed interest rates ranging from 7% to 11.2% collateralized by real
property, personal property, fixtures,
equipment and the assignment of rents 57 4,477
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 5.50% at June 30, 2001;
collateralized by
personal property, land, fixtures and rents 6,780 6,895
Mortgage note payable to a financial institution maturing in 2003; bearing
interest at 6.75%; collateralized by property and
equipment 13,972 13,972
Other 413 90
------- -------
46,423 53,425
Less: current maturities 2,664 2,538
------- -------
$43,759 $50,887
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 at the date of the sale-leaseback which was $10,815,000 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
Note D: Preferred Stock
The following summarizes the various classes of preferred stock (amounts in
thousands except per share data):
June 30, December 31,
2001 2000
---- ----
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
shares -- 140
Series G cumulative convertible preferred stock, $.10 par value; liquidation
value of $4,450; authorized 800 shares; issued and outstanding, 445
shares
-- 45
---- ----
$ 69 $254
==== ====
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%. See Note F: Subsequent Events for further
discussion of the preferred stock.
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 $453,000. 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 stockholder equal to the market price deficiency on the shares
received upon conversion.
The Series F and G preferred stock had a liquidation value of $10.00 per share
and each share was convertible into .57 shares of common stock. On January 13,
2001 the preferred F and G shares were converted into 1,054,202 shares of common
stock. See further discussion of January 13, 2001 conversion and related dispute
with preferred shareholder at Item 2, Liquidity and Capital Resources.
9
Note E: Dispositions
In January 2001, the Company sold its corporate office building in Addison,
Texas and received net cash proceeds of $1,477,772 and recorded a gain on the
sale of $406,000. The Corporate office has been relocated to approximately
10,000 square feet of leased space in Addison, Texas. In addition, the Company
also sold certain garden homes and related property that were adjacent to
Camelot Retirement in January 2001 and received net cash proceeds of $866,280
and recorded a loss on the sale of $296,000.
In April 2001 the Company exercised purchase options on two leased communities
in Fort Worth, Texas, Palm House and Oak Park Retirement, and simultaneously
sold both of the two communities to unrelated third parties. Per the terms of
the sale of Oak Park Retirement, the Company retained a fifteen year management
agreement with the new owners. The gross proceeds from the sales of Palm House
and Oak Park Retirement including both cash and notes were $5,200,000 and
$15,280,750 respectively. The cash proceeds from these sales were $17,280,750 of
which $4,450,000 was used to repay the mortgage on a retirement community owned
by the Company in Harlingen, Texas, Camelot Retirement. This mortgage payoff was
a requirement for the exercise of the purchase options on Palm House and Oak
Park Retirement. The gains on the sale of assets generated from these two
transactions following the payoff of Camelot Retirement were $49,000.
In June 2001 the Company sold a community in Lewiston Idaho, Wedgwood Terrace.
Per the terms of this sale, the Company retained a fifteen year management
agreement with the new owners. The gross proceeds from the sale were $830,000 of
notes and $3,031,250 of cash. There was no gain or loss on the sale of assets
resulting from this sale.
Note F: Subsequent Event
In July 2001 the Company redeemed the Series D preferred stock from a related
party. The redemption value of the preferred stock was $3,375,000. The holder of
the preferred stock was issued a note for $3,375,000 bearing interest of 10% and
maturing on July 1, 2003. There were certain limitations regarding the
redemption and payment of dividends with respect to the Series D Preferred
stock. These same limitations will apply to the note.
In July 2001 the Company borrowed $12,000,000, the proceeds of which were used
to purchase two assisted living communities which the Company had under option.
The collateral for the loan is the two assisted living communities. In addition,
the company issued 6,000,000 shares of a newly created Series H Preferred stock
to a subsidiary of Greenbriar as additional collateral for the $12,000,000
obligation.
10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company owns and manages assisted living communities that provide housing,
healthcare, hospitality and personal services to seniors. As of August 14, 2001
the Company operates 27 communities in 10 states with a capacity of 2,067
residents, including 3 communities managed for a third party.
Three and six month periods ended June 30, 2001 compared to three and six month
periods ended June 30, 2000.
Revenues and Operating Expenses from Assisted Living Operations
Revenues were $9,247,000 and $19,223,000 for the three and six months ended June
30, 2001 as compared to $10,319,000 and $20,841,000 for the three and six months
ended June 30, 2000. Community operating expenses, which consist of assisted
living community operations, lease expense and depreciation and amortization,
were $7,439,000 and $15,462,000 for the three and six months ended June 30, 2001
as compared to $8,359,000 and $16,882,000 for the three and six months ended
June 30, 2000. There were two communities disposed of in 2000, and certain
garden homes and related property that were adjacent to Camelot Retirement were
sold in the first quarter of 2001 and three other communities were sold in the
second quarter of 2001. The revenue from these communities that was included in
both the three and six months ended June 30, 2000 was $1,227,000 and $1,846,000
respectively. The operating expenses from these communities that were included
in both the three and six months ended June 30, 2000 were $1,181,000 and
$1,850,000.
Corporate General and Administrative Expenses
General and administrative expenses were $1,948,000 and $3,132,000 for the three
and six months ended June 30, 2001 as compared to $1,065,000 and $2,177,000 for
the three and six month periods ended June 30, 2000. The increase in the
corporate general and administrative expenses for both the three and six months
ended June 30, 2001 is primarily a result of the increase in corporate legal
expenses associated with the ongoing litigation with LSOF. See further
discussion of litigation with LSOF at Liquidity and Capital Resources.
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.
11
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. Under the
circumstances, the Company wrote off the entire $4,525,000.
The Company decided to dispose of two assisted living communities, which were
not meeting operating performance expectations. These communities were written
down to net realizable value. Also, a third community whose operations had
deteriorated was 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 were
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, 2001
was $64,000 and $141,000 compared to $101,000 and $216,000 for the comparable
periods in 2000. The decrease in interest and dividend income for both the three
and six month periods is a result of less cash available for investment
purposes.
Net Gain (Loss) on the Sale of Assets
The net gain (loss) on the sale of assets for the three and six months ended
June 30, 2001 was $(222,000) and $159,000 respectively. The Company sold its
corporate office building in 2001, which resulted in a gain of $406,000. In
addition, certain garden homes and related property that were adjacent to
Camelot Retirement were sold in 2001 resulting in a loss of $296,000.
In 2001 the Company also exercised purchase options on two leased communities in
Fort Worth, Texas, Palm House and Oak Park Retirement, and simultaneously sold
both of the two communities to unrelated third parties. The gains on the sales
of assets generated from these two transactions were $49,000. See further
discussion of these transactions at Note E: Dispositions.
The 2000 gain (loss) is attributable to the sale of undeveloped land that did
not fit into the Company's strategic plans.
Liquidity and Capital Resources
At June 30, 2001, the Company had net working capital deficit of $266,000.
In April 2001 the Company exercised purchase options on two leased communities
in Fort Worth, Texas and simultaneously sold both of the two communities to
unrelated third parties. After exercise of the purchase options and the payoff
of approximately $4,450,000 of debt on a third community, the Company generated
$496,000 of cash proceeds. See Net Gain (Loss) on the Sale of Assets and Note E:
Dispositions for additional discussion of these transactions.
12
In December 1997 the Company sold Series F and Series G convertible preferred
shares for $22,000,000 less selling and offering costs of $453,000. Payment was
received on January 13, 1998. The preferred stockholders receive a cash dividend
of 6% payable quarterly. The sale was to Lone Star Opportunity Fund, L.P.
Subsequent to the initial transaction the preferred stock was sold or
transferred to LSOF Pooled Equity L.P. ("LSOF").
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
("Cash Payment") to the preferred stockholder equal to the market price
deficiency on the shares received upon conversion.
The 14% guaranteed return has been 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 January 13, 2001, a Cash Payment of $27,167,000 was due
based upon a conversion at that date.
In January 2000 Greenbriar and LSOF entered into an agreement whereby Greenbriar
would redeem the Series F & G preferred stock from proceeds generated from the
sale or refinancing of certain assets ("the redemption agreement"). In
connection with the redemption agreement the Company paid LSOF a total of
$4,760,000 during 2000.
The original agreement provides the Series F & G preferred stockholders the
option to convert beginning January 13, 2000. The agreement further provides for
a mandatory conversion on January 13, 2001. Greenbriar received a notice dated
October 30, 2000, from LSOF advising that they were electing to convert the
outstanding shares of preferred stock into common stock. Such notice sets forth
the holder's position that, as a result of certain employee stock options issued
by the Company, the conversion price of the Preferred Stock had been reduced
from $17.50 per share to $0.69 per share, and that the Company must issue
27,502,855 shares of common stock upon conversion. If such shares were issued,
they would constitute approximately 80% of the Company's common stock and
represent a change in control of Greenbriar. The Company would be forced to
obtain stockholder approval of the issuance of such a large block of common
stock or face a delisting of its common stock on the American Stock Exchange. In
the event such conversion occurred, the Company's obligation to pay the holder
the "make-whole" distribution that is due upon a conversion or redemption of
preferred stock would be reduced from approximately $27,167,000 to, based upon
information provided by LSOF, approximately $8,600,000.
The Company took the position that the conversion price was not properly subject
to adjustment, and, if the holder were to have converted, it would be at the
$17.50 conversion price stated in the terms of the preferred stock agreement.
The Company's position is based, in part, upon the holder's failure to follow
all procedures for adjustment and conversion at the adjusted price, and on the
Company's rescission of the employee stock options that were the basis for the
holder's purported adjustment.
13
LSOF filed a declaratory judgment action in the State District Court in Dallas
County, Texas seeking a finding that it is entitled to a $0.69 conversion price.
The Company filed specific denials and affirmative defenses and counterclaims in
defense of such action, seeking, among other things, a contrary ruling that the
conversion price was not adjusted.
On January 13, 2001, the Company took the action mandated by the terms of the
Series F and G Convertible Preferred Stock to convert the shares of Series F and
G Convertible Preferred Stock remaining outstanding into 1,054,202 shares of
common stock and acknowledged its obligation to pay the holder the approximate
$27,167,000 Cash Payment amount as funds for repayment become lawfully
available.
On January 15, 2001, the Company received a notice dated January 12, 2001 from
the former holder of the preferred stock to the effect that the Company was in
default of the Preferred Stock Purchase Agreement for failing to provide a
quarterly compliance certificate, failing to meet various financial covenants
and failing to notify the holder of such defaults. LSOF contends that these
alleged breaches of covenants triggered penalty dividends under the terms of the
preferred stock and that Greenbriar's failure to pay those penalty dividends
entitles the LSOF to appoint 70% of the Board of Directors. The Company disputes
all such defaults and alternatively claims that such defaults have been waived,
reformed or that LSOF is estopped from asserting them. The Company further
disputes that any penalty dividends were due under the terms of the preferred
stock agreement.
On March 29, 2001, the Court considered a motion brought by LSOF seeking partial
summary judgment on certain issues. On April 5, 2001, the judge in this case
signed an order granting LSOF's motion as follows:
o The correct conversion price of the Series F and Series G Preferred
Stock was $0.69 per share based upon Greenbriar's issuance of $0.69
per share options.
o LSOF's Conversion Notice complied with the requirement for conversion
under the Certificates of Designation.
o The conversion price remained $0.69 per share even if Greenbriar
rescinded the $0.69 per share options after LSOF served its conversion
notice based on $0.69 per share of Greenbriar common stock.
This order would be a material factor at a trial.
Although the preferred stock was converted to common stock, the Company remained
obligated to pay LSOF the Cash Payment amount. If Greenbriar ultimately were to
prevail in its dispute with LSOF Greenbriar believes the amount owed could have
been approximately $27,167,000. LSOF asserted the amount owed would be in excess
of this amount.
14
The Company has entered into a Master Settlement Agreement with LSOF effective
August 1, 2001 that will settle the dispute between the parties. Under the terms
of the agreement Greenbriar will repurchase all of LSOF's ownership interests in
Greenbriar and LSOF will release all claims in exchange for $4,000,000 in cash
and the conveyance of 11 out of the 24 assisted living communities, currently
owned by the Company, subject to any indebtedness thereon. Greenbriar will then
release LSOF from any claims. Closing of the settlement is expected to occur by
the end of the third quarter and will be subject to receiving all required third
party consents and approvals.
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.
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
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Lifestyles Senior Housing Managers LLC v Villa Del Rey- Seaside, Inc. and
Neawanna By The Sea LP
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
believed their termination was unjustified, seeking damages of approximately
$800,000, they demanded the matter be submitted to binding arbitration, which is
allowed in the management contract. The arbitration hearing was held on February
19-21, 2001. On April 9, 2001, the Company was notified that the arbitration
panel had awarded Lifestyles a judgement and later, related legal expenses, both
totaling approximately $498,000. The Company is considering its legal options
but has recorded the award to Lifestyles as well as related legal fees and other
costs in its financial statement for 2001.
On July 12, 2001 Villa Del Rey - Seaside, Inc and Neawanna By The Sea Limited
Partnership filed Chapter 11 in the United States Bankruptcy Court For The
District of Nevada. In addition Villa Del Rey - Roswell LP filed for Chapter 11.
Although unrelated to the Lifestyles litigation Villa Del Rey - Roswell LP has a
lease for an assisted living community which is cross collateralized with the
lease held by Villa Del Rey - Seaside, Inc.
The parties in bankruptcy are preparing reorganization plans, which will be
filed with the court.
LSOF Pooled Equity L.P. v Greenbriar Corporation
See the discussion of this matter in Part I, Item 2.
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, results of operations or cash flows
of the Company.
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ITEMS 2-5: NOT APPLICABLE.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: None
b) Report on Form 8-K:
Report filed on August 11, 2001 disclosing under Item 5 and filing exhibits
for the mortgage loan and the settlement with LSOF Pooled Equity L.P.
described in Part I, Item 2.
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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 14, 2001 By: /s/ Gene S. Bertcher
--------------------------
Executive Vice President
Chief Financial Officer
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