UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
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, Texas 75254
(Address of principal executive offices) (Zip Code)
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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
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Common Stock, $.01 par value American Stock Exchange
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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 [ ]
Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the issuer, computed by reference to the closing sales price on March 31, 2003, was approximately $1,126,000.
At March 31, 2003, the issuer had outstanding approximately 343,900 shares of par value $.01 Common Stock. Documents Incorporated by Reference: None |
GREENBRIAR CORPORATION
Index to Annual Report on Form 10-K
Fiscal year ended December 31, 2001
Part I.........................................................................3
ITEM 1: DESCRIPTION OF BUSINESS.............................................3
ITEM 2: DESCRIPTION OF PROPERTIES..........................................13
ITEM 3: LEGAL PROCEEDINGS..................................................13
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................14
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........15
ITEM 6: SELECTED FINANCIAL DATA............................................15
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..........16
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........20
ITEM 8: FINANCIAL STATEMENTS...............................................20
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ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..............................................20
Part III......................................................................21 ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS..................................21 ITEM 11: EXECUTIVE COMPENSATION............................................22 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....25 ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................27 ITEM 14. CONTROLS AND PROCEDURES..........................................28 Part IV.......................................................................29 |
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...29
PART I
Overview and Background of Operations
Greenbriar Corporation, its subsidiaries and affiliates (the "Company") has evolved into a retirement real estate company which specializes in the buying, selling and leasing of retirement specific real estate with a concentration in the assisted living industry. The Company also operates assisted and full service independent living communities designed to serve the needs of the elderly population. Assisted living residents generally comprise frail elderly persons who require assistance with the activities of daily living such as ambulation, bathing, eating, personal hygiene, grooming and dressing, but who do not generally require more expensive skilled nursing care. Independent living residents typically require only occasional assistance but receive other support services.. When necessary, the Company enhances the value of these properties by proper operations and marketing. The Company will then resell or lease these properties to third parties, including partnerships in which the Company has an interest, at their appreciated value.
As of March 31, 2003, the Company owned or leases four communities in four states. The Company operated three of the communities , with a capacity of 252 residents, and leases one community to a third party. The Company had no interests in any partnerships that operated communities.
The Assisted Living Industry
The Company believes that the assisted living industry has become the preferred alternative to meet the growing demand for a cost-effective setting in which to care for the elderly who do not require more intensive medical attention provided by a skilled nursing center but who cannot live independently due to physical or cognitive frailties. In general, assisted living represents a combination of housing, general support services and full time personal care services designed to aid elderly residents with the activities of daily living ("ADLs") on a scheduled and unscheduled basis. Many assisted living communities also provide assistance to residents with low acuity medical needs or may offer higher levels of personal assistance for incontinent residents or residents with Alzheimer's disease or other forms of dementia. Another growing trend in the industry is the provision of care for higher levels of acuity. Generally, assisted living residents have higher levels of need than residents of independent retirement communities but lower levels than residents in skilled nursing centers. The Company believes that assisted living is one of the fastest growing segments of elderly care and will continue to experience significant growth due to the following:
Consumer Preference - The Company believes that assisted living is increasingly becoming the setting preferred by prospective residents and their families in which to care for the frail elderly. Assisted living offers residents greater independence in a residential setting which the Company believes results in a higher quality of life than that experienced in more institutional or clinical settings such as skilled nursing centers. According to the National Center for Assisted Living, there are more than 28,000 assisted living residences in the U.S. housing more than one million people.
Demographic & Social Trends - The target market for the Company's services is, generally, persons 75 years and older, one of the fastest growing segments of the U.S. population (the average age of a resident in Assisted Living is typically age 84 or older and that resident is either widowed or single). According to the U.S. Census Bureau, the portion of the U.S. population age 75 and older will have increased by 28.7%, from approximately 13.0 million in 1990 to over 16.8 million by
the year 2000, and the number of person's age 85 and older is expected to have increased 37.3% during the 1990s. This age group is projected to increase by 33.2% between the years 2000 and 2010. It is estimated by the United States Bureau of census that approximately 50% of the population of seniors over age 85 need assistance with ADLs and approximately 50% of such seniors develop Alzheimer's disease or other forms of dementia. According to Claritas, Inc., a nationally recognized demographics provider, 59% of householders over age 80 in 2000 had incomes of $15,000 and above and 40 % had incomes of $25,000 and above. Accordingly, the Company believes that the number of seniors who are able to afford high-quality residential environments, such as those offered by the Company, has increased in recent years. According to a 1998 study by the National Investment Conference (NIC), reported incomes and net worth of residents in assisted living communities are substantially lower than currently presumed by feasibility standards and industry benchmarks ($25,000 or more annual income). However, the same study states that residents are more willing to spend down assets and family members are providing more assistance than previously estimated. If the study is correct, this has dramatic implications for the future of the industry as it indicates that the industry's potential market could be two to three times larger than previously thought. Because of severe overbuilding in many markets, the NIC prediction has not been proved or disproved at this time.
Lower Average Cost - The Company believes that the average annual cost to residents receiving assisted living care in the Company's communities is significantly less than the cost of receiving similar care in a skilled nursing center.
Changing Supply of Long-term Care Beds - Most of the states in which the Company currently operates have enacted certificate of need ("CON") or similar legislation that restricts the supply of licensed nursing center beds. These laws generally limit the construction of nursing centers and the addition of beds or services to existing nursing centers, thus limiting the available supply of traditional nursing home beds. In addition, some long-term care centers have started to convert traditional nursing home beds into sub-acute beds. The Company also believes that high construction costs and limits on government reimbursement for the full cost of construction and start-up expenses will also constrain the growth and supply of traditional nursing home centers and beds. The Company expects that this tightening supply of nursing beds coupled with the aging of the population will create an increasing demand for assisted living communities. Finally, changes in Medicare reimbursement regulations have had a very negative impact on the nursing home industry. A high percentage of nursing homes are in bankruptcy and many have closed, further reducing the number of available beds and discouraging development of new beds. However, upscale private nursing homes seem to be experiencing an upturn and new construction of private pay nursing homes appears to be increasing in some markets.
Business Strategy
The Company has a business strategy of acquiring undervalued assisted and full service retirement communities, enhancing their value and selling or leasing the property to third parties, including partnerships in which the Company has an interest. The Company believes that significant growth opportunities still exist to provide assisted living and full service independent living services to the rapidly growing elderly population. In addition, due to a series of setbacks that have plagued the industry, including overbuilding; higher than anticipated operating costs; quicker turnover of residents than anticipated and difficulties in obtaining insurance, there are a number of properties available to be purchased at what the Company believes to be attractive prices.
As discussed more fully in Management's Discussion and Analysis or Plan of Operations (See Item: 7) the Company plans on participating in the acquisitions of properties through limited partnership interests in partnerships formed in conjunction with officers of the Company.
Acquisition Strategy - When reviewing acquisition opportunities, the Company considers, among other things, the competitive climate, the current reputation of the community or its operator, the quality of its management, the need and costs to reposition the community in the marketplace, the construction quality and any need for renovations and the opportunity to improve or enhance a community's operating results. The Company intends to sell any of the communities it acquires when they can be sold or leased at profit.
Operating Strategy -The Company seeks to improve the profitability of its operations through continued enhancement of the communities in its portfolio. The Company's communities are primarily operated and marketed on a private-pay, single-occupancy basis. The Company provides limited double occupancy in which residents are non-related people who are usually state-assisted. The Company has few state-assisted residents. Most states now have a currently operating Medicaid waiver program (allowing a state to set its own disbursement standards for Medicaid funds - such as payment for assisted living services).
The Company believes that the assisted living industry will continue as a private-pay industry for the foreseeable future, but may become more price-sensitive as more people need assisted living for longer periods due to increased life spans. Costs of caring for an aging America may become more of a private-pay and state-assisted partnership than currently exists. However, although Medicaid coverage is common and becoming more so, participation is still low.
The Company's operating strategy is to choose properties that can achieve and sustain a strong competitive position within chosen markets. The Company also seeks to continue to enhance the performance of the communities in its portfolio. The Company seeks to enhance current operations by (i) maintaining and improving occupancy rates at its communities (ii) opportunistically increasing resident service fees, (iii) improving operating efficiencies and (iv) improving market positioning.
Offer Residents Customized Care and Service Packages -The Company offers each of the residents in its communities a personalized assisted living service plan which may include any combination of basic support care, personal care, supplemental services, wellness services and, if needed, Alzheimer's and special care services, all subject to the level of services allowed to be offered by the licensing in place at each community. The Company offers services on both a "point for services basis" and "level of service basis." Charges for services are based on each community's price structure. The Company uses active participation of the resident, the responsible party, the resident's personal physician and other appropriate support team members in determining the level of care needed on an individual basis, whether using the point or level of service system. As a result, the Company believes that it is able to maximize customer satisfaction while avoiding the high cost of delivering all services to all residents without regard for need or choice. In communities the Company operates, the care plan for each resident is reviewed and updated at least quarterly by the resident, the resident's family and the resident's physician.
Maintain and Improve Occupancy Rates - The Company also seeks to maintain and improve occupancy rates by continuing to (i) attract new residents through marketing programs directed towards family decision makers, namely adult children of potential residents, (ii) actively seek referrals from hospitals, rehabilitation hospitals, physicians, clinics, home healthcare agencies and other acute and sub-acute healthcare providers in the markets served by the Company and (iii) develop new market niches such as respite care, adult day care and other specialty care programs sought by caregivers.
Selectively Increase Service Pricing Levels - The Company regularly reviews opportunities to increase resident service fees within its existing markets, while maintaining competitive market positions. In keeping with this strategy, the Company will continue to offer high quality assisted living services at average to above average prices and generally target private-pay residents. The Company's private-pay residents are typically seniors who can afford to pay for services from both their own and their family's financial resources. Such resources may include social security, investments, proceeds from the sale of a residence, contributions from family members and insurance proceeds from long-term care insurance policies.
Improve Operating Efficiencies - The Company seeks to improve the operating results of its communities by actively monitoring and managing its operating costs. In addition, the Company believes that concentrating communities within selected geographic regions may enable the Company to achieve operating efficiencies through economies of scale, reducing corporate and regional overhead and providing for more effective management supervision and financial controls. The Company has also become a member of HPSI, a nationwide purchasing group, to further leverage its ability to reduce and control purchasing costs.
Offer Alzheimer's and Other Dementia Services - As of March 31, 2003, the Company operated two communities with distinct special care wings specifically designed to serve the needs of individuals with Alzheimer's disease and other forms of dementia. The Company's experience indicates that Alzheimer's residents often respond better by sharing a suite with another Alzheimer's resident rather than being in a single occupancy suite. Consequently, the Company's Alzheimer's programs are designed to allow double occupancy, although rooms are available for single occupancy.
Assisted Living Services
The Company offers a wide range of full service retirement and assisted living care and services to its residents. The residents are allowed to select among the services offered beyond basic support services and are charged only for the specific services or level of services they need. The services offered by the Company can generally be categorized as follows:
Basic Support Services - These services include providing up to three meals per day in a common dining room, special dietary planning, laundry, general housekeeping, organized social and other activities, transportation, maintenance, utilities (except telephone), security and 24-hour emergency call monitoring.
Supplemental Services - These services include performing, coordinating or assisting with bill paying, banking, personal shopping, transportation, appointments, pet care and reminder services.
Personal Care Services - These services include providing assistance with activities of daily living (the ADL's) such as ambulation, bathing, eating, dressing, personal hygiene and grooming.
Wellness Services - These services include assistance with the administration of medication and health monitoring by a nurse, which are provided as permitted by government regulation.
Alzheimer's and Special Care Services - Alzheimer's care includes a higher 24-hour staff ratio to provide oversight and around-the-clock scheduled activities. An Alzheimer's care wing is secured from the rest of the building.
Properties
Operating Communities - The following table sets forth certain information
with respect to communities that were owned, operated or managed by the
Company at March 31, 2003. The Company considers its communities to be in
good operating condition and suitable for the purpose for which they are
being used.
Community
Care Resident Operations
Community Location Level Units Capacity(1) Commenced Ownership
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Graybrier Southern Pines, NC FE, DC 55 90 Feb-94 Owned (2)
Pacific Pointe King City, OR S 114 114 Jan-93 Leased (3)
Sweetwater Springs Lithia Springs, GA FE, DC 48 48 Oct-96 Leased (4)
Windsor House Greenville Greenville, SC FE, DC 31 41 Nov-97 Owned (2)(5)
Total
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Key:
S basic support and supplemental services are offered.
FE basic support, supplemental, personal care and wellness services are offered ("Frail Elderly").
DC Alzheimer's and special care services are offered ("Dementia Care").
(1) Reflects licensed capacity for Assisted Living and Dementia Care and actual number of units for Independent Living.
(2) Subject to first mortgage. Historically, each community has generally been pledged as collateral on a single mortgage and deed of trust securing a note payable to a bank, financial institution, individual or other lender. The mortgages and deeds of trust mature between 2004 and 2037 and bear interest at fixed and variable interest rates ranging from 7.5% to 12% as of December 31, 2002
(3) Leased from a partnership. Initial lease term is 10 years, expiring in 2012. The Company is responsible for all costs including repairs to the community, property taxes and other direct operating costs of the community. The lease includes clauses that allow for rent to increase over time based on a specified schedule.
(4) Leased from a REIT for 15 years expiring in 2011.
(5) Leased to a third party.
Repair and Maintenance - The Company conducts routine repairs and maintenance, as needed, of its communities on a regular basis. Several of the Company's communities have been in operation for ten years or more. The Company has no other current plans for significant expenditures relating to its existing communities and considers them to be in good repair and working order.
Community Description
The Company's existing communities as of March 31, 2003 range in size from 31 to 113 units, are from one to three stories and from 20,800 to 106,250 square feet. Most communities have a large family room, usually equipped with a fireplace, a spacious open dining area, library, TV room, commercial kitchen, beauty salon, laundry and indoor and outdoor recreational areas. Units generally range in size from approximately 330 to 400 square feet for a studio unit, 470 to 650 square feet for a one-bedroom unit and 680 to 850 square feet for a two-bedroom unit. Assisted living units, among other amenities, typically include a private bathroom, kitchenette, closets, living and sleeping areas, a lockable door, emergency call system, individual room temperature controls and fire alarm and sprinkler systems.
Alzheimer's care units are approximately the same size as studios and contain only sleeping, limited storage and, in some units, bathroom areas. Most do not have emergency call systems but do have sprinkler and fire alarm systems.
Operations
In communities in the Company's portfolio, the day-to-day operations of each community are managed by an Executive Director who is responsible for all operations of the community, including overseeing the quality of care and services, marketing, coordinating social activities, monitoring financial performance and ensuring appropriate maintenance of the grounds and building. The Executive Director consults with outside providers, such as pharmacists and dieticians, to assist residents with medication review, menu planning and response to any special dietary needs. Personal care, dietary services, housekeeping and laundry services are performed primarily by line staff who are either part or full-time employees of the Company and who are trained to perform a variety of such services. Part or full-time employees perform most building maintenance services, while third party contractors generally perform elevator, HVAC maintenance and landscaping services.
The Company's senior management and other personnel provide some support services to each of the Company's communities, including development of operational standards, budgets and quality assurance programs, recruiting, training and financial, accounting and data processing services such as accounts payable, billing and payroll. Corporate personnel and community executive directors collaborate with respect to the establishment of community goals and strategies, quality assurance oversight, development of Company policies and procedures, development and implementation of new programs, cash management, human resource management and community development.
The Company has attracted and continues to seek highly dedicated and experienced personnel. All employees are required to complete training programs which include a core curriculum comprised of personal care basics, job related specific training, Alzheimer's disease processes, first aid, fire safety, nutrition, infection control and customer service. Executive Directors receive training in all of these areas, plus marketing, community relations, healthcare management and fiscal management. In addition to some classroom training, the Company's communities provide new employees with on the job training, utilizing experienced staff as trainers and mentors.
Quality Assurance
A commitment to quality assurance is designed to achieve a high degree of resident and family member satisfaction with the care and services the Company provides. In addition to ongoing training and performance reviews of all employees, the Company's quality control measures include:
Philosophy of Management- The Company's philosophy of management is to demonstrate by its actions and require from its employees high standards of personal integrity, to develop a climate of openness and trust, to demonstrate respect for human dignity in every circumstance, to be supportive in all relationships, to promote teamwork by involving employees in the management of their own work and to promote the free expression of ideas and opinions..
Regular Community Inspections - Community inspections are conducted by corporate personnel (including the vice president of construction and maintenance, the vice president of operations and the director of medical services) on a regular basis. These inspections cover the appearance of the exterior and grounds, the appearance and cleanliness of the interior, the professionalism and friendliness of staff, resident care plans, the quality of activities and the dining program, observance of residents in their daily living activities and compliance with governmental regulations.
Marketing
The Company's marketing and sales efforts are undertaken at the local level. These efforts are intended to create awareness of a community and its services among prospective residents, their families, other key decision-makers and professional referral sources. The communities engage in traditional types of marketing activities, such as special events, direct mailings, print advertising, signs and yellow page advertising. These marketing activities and media advertisements are directed to potential residents and their adult children, who often comprise the primary decision makers for placing a frail elderly relative in an assisted living setting.
Government Regulation
Healthcare is an area of extensive and frequent regulatory change. The assisted living industry is maturing and, accordingly, the manner and extent to which it is regulated at the Federal and state levels are evolving at a steady pace. Currently, most states have a licensure category or statute that uses the term "assisted living." Several states are proposing regulations using the term. More than forty states have specific language in statute, licensure regulations (including states with draft regulations) or Medicaid policy that addresses the philosophy of assisted living. Several states have or are reviewing licensure regulations and increasing the role of state personnel in monitoring and controlling the assisted living industry.
Currently, assisted living and Alzheimer's care communities are not specifically regulated as such by the Federal Government. However, the Company's existing communities and communities it acquires are subject to regulation and licensing by state and local health, social service agencies and other regulatory authorities. Although regulatory requirements vary from state to state, these requirements generally address, among other things, staff education, training and records; staffing levels; community services, including administration and assistance with self-administration of medication; physical community specifications; size and furnishing of community units and common areas; food and housekeeping services and emergency evacuation plans and resident rights and responsibilities. Most of the Company's communities are required to possess state licenses in order to provide the levels and types of services that they offer. A limited number of the Company's communities are not required to possess such licenses because they do not supply care and/or supervision to an extent requiring them to be licensed under their respective state's laws. The Company's communities are also subject to various state and local building codes and other ordinances, including safety codes. Management anticipates that states establishing regulatory frameworks for assisted living communities will require the licensing of assisted living communities and will establish varying requirements with respect to such licensing. The Company has obtained all required licenses for each of its communities. Each of the Company's licenses must be renewed annually.
Currently, only a few states have CON requirements for assisted living communities. If Federal and state reimbursement increase or overbuilding continues in the industry other states may initiate CON requirements. This is not happening at this time and there is significant overbuilding in many markets. Consequently most major companies have either stopped or greatly reduced their development programs. Conversely, small operators and individual entrepreneurs continue to build, even in overbuilt markets. This overbuilding provides a significant opportunity for the Company to acquire properties as a substantial discount under original cost.
Like healthcare centers, assisted living communities are subject to periodic survey or inspection by governmental authorities. From time to time in the ordinary course of business, the Company receives deficiency reports. The Company reviews such reports and takes appropriate corrective action. Although most inspection deficiencies are resolved through a plan of correction, the reviewing agency typically is authorized to take action against a licensed community where deficiencies are noted in the inspection process. Such action may include imposition of fines, imposition of a provisional or conditional license or suspension or revocation of a license or other sanctions. Any failure by the Company to comply with applicable requirements could have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that its communities are in substantial compliance with all applicable regulatory requirements.
As noted earlier, the Company participates in Federally funded state reimbursement programs. However, the Company expects the bulk of its revenues to come from private payments.
The Americans with Disabilities Act ("ADA"), enacted July 26, 1990, has had and will continue to have a major effect on the full service residential retirement and assisted living industry. The communities acquired by the Company must be in compliance with this act. The Fair Housing Amendments Act of 1988 also prohibits discrimination against the handicapped in the sale or rental of a dwelling, or in the provision of services in connection with such a dwelling.
Regulation of the industry is likely to increase, particularly for those providers accepting Medicaid reimbursements. Federal and state governments regulate various aspects of the Company's business. The Company is subject to Federal and state anti-remuneration laws, such as the Federal health care program anti-kickback law that governs various types of financial arrangements among health care providers and others who may be in a position to refer or recommend patients to these providers. This law prohibits direct and indirect payments that are intended to induce the referral of patients to, the arranging of services by, or the recommending of a particular provider of health care items or services. The Federal health care program anti-kickback law has been interpreted to apply to some contractual relationships between health care providers and sources of patient referral. Similar state laws vary from state to state, are sometimes vague and have rarely been interpreted by courts or regulatory agencies. Violation of these laws can result in loss of license, civil or criminal penalties and exclusion of health care providers or suppliers from furnishing covered items or services to beneficiaries of the Federal health care program. The Company cannot be sure that these laws will be interpreted consistently with its practices.
The Company is subject to the Fair Labor Standards Act, which governs such matters as minimum wage, overtime and other working conditions. Many of the Company's employees are paid at rates related to the Federal minimum wage and accordingly, increases in the minimum wage will result in an increase in labor costs.
In compliance with underlying state bond financing, rents at one community in Oregon must be approved by an agency of the state.
Management is not aware of any non-compliance by the Company with applicable regulatory requirements that would have a material adverse effect on the Company's financial condition or results of operations.
Competition
The long-term care industry is highly competitive and the assisted living and Alzheimer's care businesses in particular have and will continue to become increasingly competitive in the future. In the communities within its portfolio the Company competes with other assisted living companies and numerous other companies providing similar long-term care alternatives such as home healthcare agencies, community-based service programs, retirement communities and convalescent centers (nursing homes). In addition, the Company competes with a number of tax-exempt nonprofit organizations which can finance capital expenditures on a tax-exempt basis or receive charitable contributions unavailable to the Company and which are generally exempt from income tax. In most markets where the Company operates or plans to operate the level of competition is rapidly increasing both from regional, national and local providers. The Company expects this trend to continue and many markets are already overbuilt and more will be overbuilt in the future. If reimbursement programs, such as the Medicaid waiver program, increase, assisted living competition will grow from existing and new companies focusing primarily on assisted living. Nursing home centers that provide long-term care services are also a source of competition for the Company, particularly with respect to Alzheimer's care services. Many of the Company's present and potential competitors have, or may have access to, greater financial, management and other resources than those of the Company. There can be no assurance that competitive pressures will not have
a material adverse effect on the Company's portfolio. However, these same circumstances provide a substantial opportunity for the Company to acquire communities at a price that will allow a profitable resale or lease if the community is operated properly. The Company also competes with other providers of long-term care in the acquisition and development of additional communities.
The Company also competes with other providers of long-term care in attracting and retaining qualified and skilled personnel. In recent years, the healthcare industry has experienced a shortage of qualified healthcare professionals. The Company's operations require some professionally certified (RN or LPN) staff, primarily for supervision of care staff. While the Company has been able to retain the services of an adequate number of professionals to staff its communities appropriately and maintain its standards of quality care, there can be no assurance that continued shortages will not affect the ability of the Company to maintain the desired staffing levels.
Insurance
The provision of personal and healthcare services entails an inherent risk of liability compared to more institutional long-term care communities. Assisted living communities of the type operated by the Company, especially its dementia care communities, offer residents a greater degree of independence in their daily lives. This increased level of independence, however, may subject the resident and the Company to certain risks that would be reduced in more institutionalized settings. The Company currently maintains liability insurance intended to cover such claims however the number of insurance carriers who offer such insurance is rapidly diminishing and the costs continue to escalate. The Company also carries property insurance on each communities.
Environmental Matters
Under various Federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean up costs incurred by such parties in connection with the contamination. Such laws typically impose clean up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants and the liability under such laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of such substances may be substantial and the presence of such substances or the failure to remediate properly such property may adversely affect the owner's ability to sell or lease the property or to borrow using the property as collateral. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. Persons who arrange for the disposal or treatment of hazardous or toxic substances also may be liable for the costs of removal or redemption of such substances at the disposal or treatment community, whether or not such community is owned or operated by that person or corporation. Finally, the owner or operator of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site.
The Company has conducted environmental assessments on most of its existing communities that it operates plus one community it leases. These assessments have not revealed any environmental liability that the Company believes would have a material adverse effect on the Company's business, assets or results of operations nor is the Company aware of any such environmental liability. The Company owns one community that has been operated for nine years for which an environmental assessment has not been obtained. The Company believes that all of its communities are in compliance in all material respects with all Federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. The Company has not been notified by any governmental authority, and is not otherwise aware, of any material non-compliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of its communities.
Control by Insiders
As of March 31, 2003, the Company's officers, directors and affiliated entities owning more than 5% of the Company's outstanding stock owned approximately 56% of the outstanding shares of Common Stock. Sylvia M. Gilley, widow of former Chairman, President and Chief Executive Officer James R. Gilley, and one corporation wholly owned by Mrs. Gilley, beneficially owned an aggregate of approximately 22.8% of the outstanding Common Stock of the Company. Mr. Victor L. Lund, a director of the Company and the founder of Wedgwood Retirement Inns (a company acquired by the Company in 1996), beneficially owned approximately 17.7% of the outstanding shares of Common Stock. Mr. Floyd Rhoades, as a result of the stock he received when the Company purchased American Care Communities, Inc., beneficially owns 9.1% of the Company's outstanding stock. Mr. William Shirley, due principally from the sale to the Company of assisted living communities, beneficially owns approximately 6% of the outstanding Common Stock of the Company. Accordingly, such individuals will have the ability, by voting their shares in concert, to significantly influence (i) the election of the Company's Board of Directors and, thus, the direction and future operations of the Company, and (ii) the outcome of all other matters submitted to the Company's stockholders, including mergers, consolidations and the sale of all or substantially all of the Company's assets. In addition, the parties listed above currently hold options or conversion rights to acquire 87,800 shares of Common Stock. The issuance of additional shares of Common Stock pursuant to the exercise of these stock options granted under the Company's stock option plan would increase the number of shares held by the Company's executive officers, directors and affiliated entities in the future.
Anti-Takeover Provisions
The Company's Articles of Incorporation and Bylaws contain, among other things, provisions (i) establishing a classified board of directors with staggered term of service (ii) authorizing shares of preferred stock with respect to which the Board of Directors has the power to fix the rights, preferences, privileges and restrictions without any further vote or action by the stockholders (iii) requiring holders of at least 80% of the outstanding Common Stock to join together in requesting a special meeting of stockholders and (iv) prohibiting removal of a director other than for "cause" and then only if the holders of at least 80% of the outstanding Common Stock vote for such removal. The Company is also subject to Sections 78.411-78.444 of the Nevada Revised Statutes (the "Control Act") which in general prohibits any business combination involving the Company and a person that beneficially owns 10% or more of the outstanding Common Stock or an affiliate or associate of the Company who within the past three years was the beneficial owner, directly or indirectly, or 10% or more of the outstanding Common Stock, except under certain circumstances. The application of the Control Act and/or the provisions of the Company's Articles of Incorporation and Bylaws could delay, deter or prevent a merger, consolidation, tender offer or other business combination or change of control involving the Company that some or a majority of the Company's stockholders might consider to be in their personal best interests, including offers or attempted takeovers that might otherwise result in such stockholders receiving a premium over the market price of the Common Stock and may adversely affect the market price of and the voting and other rights of, the holders of Common Stock.
Employees
At March 31, 2003, the Company employed 140 employees, including 58 full-time and 82 part-time employees. The Company believes it maintains good relationships with its employees. None of the Company's employees are represented by a collective bargaining group.
Corporate Offices
The Company's principal office is approximately 12,000 square feet of leased space in Dallas, Texas. The lease extends through April 2006. The Company believes the leased space will meet the Company's needs for the foreseeable future.
See Item 1 for a discussion of properties owned or leased by the Company.
Lifestyles Senior Housing Managers, LLC
In 1995 Lifestyles Senior Housing Managers, LLC (Lifestyles) entered into a contract to manage an assisted living community in Seaside, OR, which is leased by Neawanna by the Sea, LP (Neawanna) from a REIT. In 1996 the Company acquired the lease for 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 contended their termination was unjustified. The matter was taken to arbitration and on April 9, 2001 the Company was notified that the arbitration panel had awarded Lifestyles $498,000 for damages plus expenses.
One of the terms of the Neawanna lease is that any unsatisfied debt exceeding $250,000 is an event of default. Rather than lose the lease on Neawanna, on July 12, 2001 Villa Del Rey - Seaside, Inc. and Neawanna By The Sea LP filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for The District of Nevada. In addition Villa del Rey - Roswell LP filed for Chapter 11 in the same court. Although unrelated to the Lifestyles matter Villa Del Rey - Roswell LP has a lease for an assisted living community, which is cross-collateralized with the lease held by Neawanna by the Sea, LP.
In September 2002 the Company has entered into an agreement to sell its interest in VDR Roswell to an independent third party. This same group has purchased Lifestyles' claim regarding Neawanna. The Company is currently negotiating the sale of Neawanna to that group. In November 2002 all of the above entities were released from bankruptcy and Neawanna and VDR Roswell were sold.
Internal Revenue Service Examination
In 1991 the Company sold four nursing homes to a not for profit entity who used tax-free bonds to finance the purchase. On September 18, 2002 the Company was notified by the Internal Revenue Service (IRS) that they have initiated an examination under Section 6700 of the Internal Revenue Code as it relates to the Company's activities in connection with the issuance and sale of such bonds.
The IRS examination is focused on whether the tax-free bonds were issued inappropriately and whether certain inappropriate statements were made or furnished with respect to the excludability of income or the securing of other tax benefits. If so, the IRS is reviewing whether the Company was involved.
The Company did sell the properties and receive tax-free bonds. The Company subsequently sold the bonds. The Company believes that it did nothing inappropriate. Both the issuance of tax-free bonds and their subsequent sale are a highly technical area and the Company relied on the advice and reports of investment bankers, appraisers, attorneys, and outside certified public accountants.
Other than the initial notice the Company has not been contacted by the IRS regarding this matter.
Other
The Company has been named as a 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.
The Company held its annual meeting on June 7, 2002. At that meeting the shareholders re-elected two members to the Board of Directors.
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
----------------------------------------------------------------
The Company's Common Stock is traded under the symbol "GBR" and is listed
on the American Stock Exchange. The high and low closing sales prices of
the Company's Common Stock on the American Stock Exchange during the last
two fiscal years, adjusted for the December 2001 reverse split and the
January 2002 stock dividend are:
2002 2001
High Low High Low
--------------------- ---------------------
First Quarter $24.50 12.50 $11.80 5.20
Second Quarter 21.00 8.00 11.00 5.00
Third Quarter 9.50 7.50 7.00 5.20
Fourth Quarter 10.00 5.50 15.28 4.20
The Company has not paid cash dividends on its Common Stock during at least
the last ten fiscal years and it has been the Company's practice to retain
all earnings to pay down long-term debt and to finance the future expansion
and development of its business. Any determination to pay cash dividends in
the future will be at the discretion of the Board of Directors and will be
dependent on the Company's financial condition, results of operations,
contractual restrictions, capital requirements, business prospects and such
other factors as the Board of Directors deems relevant. The Company's
ability to pay dividends in the future may be limited by the terms of
future debt financing and other arrangements.
The closing price on the Company's common stock on March 31, 2003, was
$7.40 per share. As of March 31, 2003, there were 508 holders of record of
the Company's common stock.
ITEM 6: SELECTED FINANCIAL DATA
-------------------------------
2002 2001 2000 1999 1998
-------------------------------------------------------------
Operating revenue $ 4,422 $ 23,568 $ 33,482 $ 33,587 $ 46,208
Operating expenses 6,767 27,543 6,378 33,606 50,499
-------------------------------------------------------------
Operating profit (loss) (2,345) (3,975) (10,115) (19) (4,291)
Earnings (loss) from continuing operations
before income taxes $ (2,996) $ 9,559 $ (10,115) $ 709 $ (10,357)
Income tax expense 749 2,824 -- -- --
Earnings (loss) from continuing
operations (3,745) 6,735 (10,115) 709 (10,357)
Loss from discontinued operations (4,628) (317) (508) (627) (245)
NET EARNINGS (LOSS) (8,373) 6,418 (10,623) 82 (10,602)
Earnings (loss) per common Share
Basic and diluted $ (23.32) $ 15.53 $ (39.17) $ (12.33) $ (37.20)
BALANCE SHEET DATA:
Total assets $ 12,624 $ 44,022 $ 102,588 $ 119,908 $ 130,353
Long-term debt 8,479 16,693 50,887 50,477 58,154
Total liabilities 11,273 34,753 68,944 69,425 78,516
Preferred stock redemption obligation -- -- 26,988 27,763 21,748
Total stockholders' equity 1,351 9,269 6,656 22,720 30,089
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Overview
As of December 31, 2002 the Company owns or leases three communities in three states with a capacity of 257 residents, consisting of two communities that are owned and one that is leased. In addition the Company owns one community that is operated by an independent third party with a capacity of 41 residents.
Since 1996 the Company has owned, leased and operated assisted living and retirement communities throughout the United States. During that period of time the Company has both acquired and sold over seventy communities. The acquiring and disposing of its real estate assets has been an integral part of the Company's business.
During the past year the Company's business strategy has evolved into one of focusing on the real estate component and reducing its operating activities. The Company objective is to become an investor in various entities, principally partnerships, whose intent is to acquire properties and either sell, lease or enter into joint venture agreements with third party operators with respect to these properties
In October 2001 the company became a 56% limited partner in a partnership, Corinthian Real Estate Investors LP (CREI), which acquired two assisted living communities in Carrollton, TX. In September 2002 the partnership sold its two properties for cash sufficient to pay off its debt plus a note for $1,394,000. The note is due in two years with interest of 12% payable monthly. CREI owed the Company $400,000 and settled its obligation by giving the Company a $400,000 participation in the note.
In January 2002 the Company became a 56% limited partner in a partnership, Muskogee Real Estate Investors (MREI), which acquired two assisted living communities in Muskogee, OK, including one community acquired from the Company. In September 2002 the partnership leased the two Communities to a third party for three years. The lease will generate positive cash flow during the three-year lease period. The lessee has committed to purchase the two properties sometime during the three-year period for $6,000,000. The current debt on the property is $4,000,000. When the purchase is completed the Company will receive 56% of $2,000,000 or $1,120,000.
The Company has a note to Sylvia M. Gilley for $3,375,000 bearing interest at 10%. In November 2002, the Company transferred its 56% interest in MREI to Sylvia M. Gilley in exchange for a reduction of $1,120,000 on the debt and a one year extension on the due date of the Company's note to Mrs. Gilley.
In September 2002 the Company entered into an agreement with an independent third party to jointly acquire properties in the future. The third party entity is affiliated with the various entities that acquired or leased the properties from CREI and MREI mentioned above. Affiliates of this group also purchased properties in Harlingen, TX and Sherman, TX from the Company on September 30, 2002 and acquired the Company's interest in entities that operated properties in Roswell NM and Seaside OR.
The agreement provides that partnerships formed by the Company will be allowed to participate in the acquisition of twelve communities and receive a 50% partnership interest. The Company has agreed to pay $660,000, payable at $55,000 per month from October 2002 through September 2003, to cover the due diligence expenses incurred by its partner in these ventures. The agreement further provides that at any time during the twenty-four months subsequent to the formation of a partnership and the acquisition of properties the third party can purchase the Company's partnership interest in each of the 12 properties.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain of the Company's accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments and estimates are based upon the Company's
historical experience, current trends, and information available from other sources that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies are more significant to the judgments and estimates used in the preparation of its consolidated financial statements. Revisions in such estimates are recorded in the period in which the facts that give rise to the revisions become known.
Deferred Tax Assets
Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. The future recoverability of the Company's net deferred tax assets is dependent upon the generation of future taxable income prior to the expiration of the loss carry forwards. The Company believes that it will generate future taxable income to fully utilize the net deferred tax assets.
Fiscal 2002 as Compared to Fiscal 2001
Revenues and Operating Expenses from Assisted Living Operations. Revenues decreased to $9,120,000 in 2002 compared to $30,861,000 in 2001. Community operating expenses, which consist of assisted living operations expense, lease expense and depreciation and amortization, were $8,070,000 in 2002 as compared to $25,417,000 in 2001.
During the last six months of 2001 the Company disposed of 11 Communities as part of redemption of its Series E and F Preferred Stock. The Company also sold three Communities to not for profit organizations. The Company also sold one Community and leased one Community to independent third parties. In addition the Company entered into a sub-management contract for three properties whereby the sub-manager is retaining the revenue and paying the expenses as their fee for being a sub-manager. The sub-manager also had an option to acquire the communities upon approval of the third party lenders. For reporting purposes the Company for the duration of the sub management agreement no longer recorded the revenue and operating expenses of the three Communities. In May 2002 one of the properties with a sub-management contract was sold and one was returned to the Company and immediately leased to a third party. The final property was shut down and is in the process of being turned over to the lender.
During the first quarter of 2002 leases held by the company for the operation of two properties were not renewed. As of May 31, 2002 one property was contributed to a partnership in which the Company has a 56% limited partnership interest. The partnership is accounted for using the equity method of accounting.
On September 30, 2002 the company sold two properties and on November 1, 2002 the Company sold two subsidiaries each of whom owned an assisted living property
In October 2001 and May 2002 the Company obtained 56% limited partnership interests in two partnerships which own four communities. These communities are accounted for using the equity method of accounting and therefore the Company does not record the revenue and expenses of the communities.
Overall the Company recorded revenue and expenses for 24 fewer communities 2002 than the comparable periods in the prior year. The reduction in the revenue and operating expenses for 2002 as compared to 2001 is almost entirely due to the reduction in the number of Communities owned and leased by the company
Corporate General and Administrative Expenses. These expenses were $2,329,000 in 2002 as compared to $4,875,000 in 2001. The decrease in the corporate general and administrative expenses is primarily a result of a decrease in salaries and related payroll expenses. Due to a significant reduction in the number of Communities operated by the Company the number of employees on the corporate staff was reduced. In addition salaries for members of senior management have been reduced. Also during 2001 the Company was incurring legal and professional fees with respect to a lawsuit with a preferred shareholder in addition to its customary expenses. Legal fees decreased by $1,55,052 in 2002 when compared to 2001.
Write-off of Impaired Assets and Related Expenses. During 2002 the Company wrote down the recorded value of a property it is attempting to sell.
Interest and Dividend Income Interest and dividend income was $412,000 in 2002 as compared to $212,000 in 2001. The increase in interest and dividend income is a result of interest recorded on a $1,600,000 note receivable related to the Company's investment in the Corinthian Real Estate Investors L.P. in November 2001.
Interest Expenses. These expenses decreased to $2,279,000 in 2001 as compared to $4,958,000 in 2000. The decrease is due primarily to the reduction in the number of Communities.
Gain on Sale of Partnership Interest In November the Company sold it's 56% interest in MREI to Sylvia M. Gilley in exchange for a reduction of $1,120,000 owed to Ms Gilley and a one year extension on the remaining portion of the note due her of $2,255,000. The Company recorded income of $930,000.
Other Income Expenses: In September 2002 the Company entered into a venture with a third party to secure partnership interests in future acquisitions of assisted living communities. The agreement required the Company to pay $660,000 over the next twelve months to fund the cost of the due diligence for these acquisitions. There can be no assurance that this venture will be successful and the Company has therefore charged the entire cost to expense. The Company records its 56% investment CREI by the equity method of accounting. The Company's share of the operating losses of this partnership was $621,000. On September 30, 2002 CREI sold it's two properties to a third party for a gain of $2,315,000. The Company has deferred recognition of its 56% participation in the gain.
Discontinued Operations In October 2001the Financial Accounting Standard Board issued Statement of Financial Accounting Standards #144 Accounting for the Impairment or Disposal of long Lived Assets. (SFAS # 144). The Company adopted SFAS # 144 effective January 1, 2002 which resulted in a presentation of the net operating results of these qualifies properties sold in 2002 as (loss) from discontinued operations for all periods presented. During 2002 the Company disposed of six properties. Revenue for the six properties were approximately $4,698,000 in 2002 and $7,293,000 in 2001. Operating expenses for the six properties were approximately $5,325,000 in 2002 and $7,610,000 in 2001.
The loss on sale of these six properties in 2002 was $4,001,000which includes income tax expense of $440,000.
Fiscal 2001 as Compared to Fiscal 2000
Revenues and Operating Expenses from Assisted Living Operations. Revenues decreased to $23,568,000 in 2001 compared to $33,482,000 in 2000 . Community operating expenses, which consist of assisted living operations expense, lease expense and depreciation and amortization, were $19,432,000 in 2001 as compared to $26,951,000 in 2000. During 2001 the Company gave LSOF 11 communities as part of the settlement in October 2001, sold three communities to a not-for-profit in April, June and August of 2001, entered into a sub management agreement for three communities in November, leased one community in November and sold one community to a third party in April. The decrease in operating revenue and expenses is due almost entirely to the reduction in the number of communities operated by the Company.
Corporate General and Administrative Expenses. These expenses were $4,875,000 in 2001 as compared to $5,448,000 in 2000. The decrease in the corporate general and administrative expenses between 2001 and 2000 is primarily a result of the decrease in salaries and related personal expenses .Due to the significant reduction in the number of communities operated by the Company the number of employees on the corporate staff was reduced. Also reduced were the overhead costs associated with personnel. In addition in October the salaries for the two senior officers was reduced.
Write-off of Impaired Assets and Related Expenses. As noted above the Company is attempting to sell three communities and based upon the terms of the pending transaction Company has reduced the carrying value of the communities by $1,887,000.
Interest and Dividend Income. Interest and dividend income was $212,000 in 2001 as compared to $254,000 in 2000. The reduction in interest and dividend is due to a net reduction in the notes that generated the interest income.
Interest Expenses. These expenses decreased to $3,280,000 in 2001 as compared to $3,771,000 in 2000. Approximately $1,000,000 of the decrease is a result of the disposition of owned communities throughout 2001. There was an increase in interest expense in 2001 for additional notes due to the conversion of the Series D preferred stock to a note. The Series D
preferred stock was held by Sylvia Gilley, the wife of the Company's CEO. The preferred stock was issued to Mrs. Gilley in 1996 to assist the Company in completing an acquisition. As the holder of preferred stock Mrs. Gilley received dividends, which are not deductible for tax purposes. As a note the interest paid will provide the Company with a tax deduction. The note matures on July 1, 2003. Because the note was a conversion of preferred stock the same corporate limitations regarding the redemption of preferred stock will apply to the note
Other income (expense), net. Other income (expense) was $16,602,000 in 2001 The Company recorded a gain of $16,129,000 due to the settlement with LSOF. The balance of the other income represents the net gain on the properties sold during 2001.
Discontinued Operations In October 2001the Financial Accounting Standard Board issued Statement of Financial Accounting Standards #144 Accounting for the Impairment or Disposal of long Lived Assets. (SFAS # 144). The Company adopted SFAS # 144 effective January 1, 2002 which resulted in a presentation of the net operating results of these qualifies properties sold in 2002 as (loss) from discontinued operations for all periods presented. During 2002 the Company disposed of six properties. Revenue for the six properties were approximately $7293,000 in 2001 and $7,779,000 in 2000. Operating expenses for the six properties were approximately $7,610,,000 in 2001 and $8,287,000 in 2001.
Liquidity and Capital Resources At December 31, 2002 the Company had current assets of $2,048,000 and current liabilities of $1,501,000. During 2001 the Company reduced its long-term debt from $50,887,000 to |
$16,693,000. During 2002 the Company further reduced its long-term debt to $8,986,000. The reduction was due to the sale of properties, the repayment of the mortgages related to the properties and the exchange of a partnership interest held by the Company for a reduction in debt.
In December 2002 the company satisfied a $1,600,000 note it owed a third party by exchanging it for a $1,600,000 note receivable the Company held from a third party. The Company has guaranteed the original creditor that the note will be paid. The note is due September 30, 2004.
Future acquisitions by the Company are dependent upon obtaining capital and financing through various means, including financing obtained from loans, sale/leaseback transactions, 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 filing 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 or 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.
Nearly all of the Company's debt is financed at fixed rates of interest. Therefore, the Company has minimal risk from exposure to changes in interest rates.
The financial statements required by this Item begin at page F-1 hereof.
None.
PART III
Directors and Business Experience
Class I
Term expires in 2004
--------------------
Gene S. Bertcher Due to the death of James R. Gilley, the
Age 54 Company's Chairman, President and Chief
Executive Officer, on December 30, 2002, Mr.
Bertcher was elected President and Chief
Executive Officer on January 3, 2003. Mr.
Bertcher has been Executive Vice President,
Chief Financial Officer and Treasurer of the
Company since November 1989 and was a director
from November 1989 until September 1996 and
re-elected to the board in 1999. He is a
certified public accountant
Class II
Term expires in 2005
--------------------
Victor L. Lund Mr. Lund has been a director of the Company
Age 74 since 1996. He founded Wedgwood Retirement
Inns, Inc. (Wedgwood) in 1977. Wedgwood became
a wholly owned subsidiary of the Company on
March 31, 1996. For most of Wedgwood's
existence, Mr. Lund was Chairman of the Board,
President and Chief Executive Officer,
positions he held until the Company acquired
Wedgwood. He continues to serve as Chairman of
the board of Wedgwood.
Class III
Term expires in 2003
--------------------
Don C. Benton Mr. Benton has been a director of the Company
Age 47 since June 1994. He currently serves as a
consultant to various Twelve Step ministry
programs. He was Director of Twelve Step
Ministries, Lovers Lane United Methodist Church
of Dallas from 1991 until 1997 and has been a
consultant for Spiritual Counseling and
Education for the Addiction Recovery Center
since 1993. He also served in that capacity for
the Argyle Specialty Hospital. Mr. Benton is a
Licensed Chemical Dependency Counselor and a
Certified Alcohol and Drug Abuse Counselor.
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Other Executive Officers and Business Experience
Oscar Smith Mr. Smith has been Secretary of the Company
Age 60 since December 2001. He has been Vice President
of the Company since June 1994. Prior to
joining the Company he owned and operated a
multi-unit retail and manufacturing business in
Norfolk, Virginia..
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Organization of the Board of directors
The board of directors has the following committee:
Committee Members
--------- -------
Audit Victor L. Lund - Chairman
Don C. Benton
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Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company pursuant to Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or upon written representations received by the Company, the Company is not aware of any failure by any director, officer or beneficial owner of more than 10% of the Company's common stock to file with the Securities and Exchange Commission, on a timely basis, any Form 3, 4 or 5 relating to 1998.
The following tables set forth the compensation paid by the Company for services rendered during the fiscal years ended December 31, 2002, 2001 and 2000 to the Chief Executive Officer of the Company and to the other executive officers of the Company whose total annual salary in 2002 exceeded $100,000, the number of options granted to any of such persons during 2002 and the value of the unexercised options held by any of such persons on December 31, 2002.
Summary Compensation Table
Long Term
Compensation-
Number of
Shares of
Name and Annual Common Stock All
Principal Compensation- Underlying Other
Position Year Salary Options Compensation(1)
--------- ---- ------------- -------------- ---------------
James R. Gilley, 2002 $12,000 - $5,500
Chairman, President and Chief 2001 386,000 10,000 8,000
Executive Officer 2000 460,000 10,000 5,500
Gene S. Bertcher, 2002 14,000 (Y) $6,500
Executive Vice President and 2001 155,000 - 8,00
Chief Financial Officer 2000 185,000 - 4,500
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(1) Constitutes directors' fees paid by the Company to the named individuals.
Option Grants Table
(Option Grants in Last Fiscal Year)
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted Fiscal Year Per Share Date
----- ---------- --------------- ----------- -----------
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NONE
Aggregated Option Exercises in Last Fiscal
Year and FY-End Option Values
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at 2002
Options at 2002 FY-End FY-End
Shares Acquired Value ------------------------- ------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ------------------------- -------------------------
James R. Gilley (Y) (Y) 50,000 (Y) (Y) (Y)
Gene S. Bertcher (Y) (Y) 1,000 (Y) (Y) (Y)
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Stock Option Plan
The Board of Directors administers the Company's 1992 Stock Option Plan, as amended (the "1992 Plan"), 1997 Stock Option Plan (the "1997 Plan") and the 2000 Stock Option Plan (the "2000 Plan") each of which provides for grants of incentive and non-qualified stock options to the Company's executive officers, as well as its directors and other key employees, and consultants in the case of the 1997 Plan and 2000 Plan. Under the three Plans, options are granted to provide incentives to participants to promote long-term performance of the Company and specifically, to retain and motivate senior management in achieving a sustained increase in stockholder value. Currently, none of the Plans has a pre-set formula or criteria for determining the number of options that may be granted. The exercise price for an option granted is determined by the compensation committee, in an amount not less than 100 percent of the fair market value of the Company's common stock on the date of grant. The compensation committee reviews and evaluates the overall compensation package of the executive officers and determines the awards based on the overall performance of the Company and the individual performance of the executive officers. The Company currently has reserved 10,875 shares of common stock for issuance under the 1992 Plan, 25,000 shares of common stock under the 1997 Plan and 25,000 shares of common stock under the 2000 Plan. As of March 31, 2003 options have been granted for all shares reserved under the 1992 Plan. No options are issued for the 1997 or 2000 Plans.
Compensation of Directors
The Company pays each director a fee of $2,500 per year, plus a meeting fee of $2,000 for each board meeting attended.
Audit Committee Report
Due to the death of James R. Gilley and the resignation of S, Louis Jackson
the Board of Directors currently has three members. The Audit Committee is
currently comprised of the two outside directors, Victor L. Lund and Donald
C. Benton. The Company anticipates that at least one additional outside
director will be added within the next sixty days.
PERFORMANCE GRAPH
The following graph compares the cumulative total return on a $100 investment in the company's common stock on December 31, 1998 through December 31, 2002, based on the company's closing stock price on December 31, for each of those years. The same information is provided for the Standard & Poor's 500 index and, from 1998 through 2002 for an industry peer group1.
][GRAPHIC OMITTED]
1 The company considers its peer group to be public companies whose business is primarily in the assisted living industry. Those companies are Alterra Healthcare Corporation, American Retirement Corporation, ARV Assisted Living, Inc., Assisted Living Concepts, Inc., Emeritus Corporation and Sunrise Assisted Living, Inc.
The following table sets forth as of March 31, 2003, certain information with respect to all stockholders known by the company to own beneficially more than 5% of the outstanding common stock (which is the only outstanding class of securities of the company, except for Series B preferred stock, the ownership of which is immaterial), as well as information with respect to the company's common stock owned beneficially by each director, director nominee, and current executive officer whose compensation from the company in 2001 exceeded $100,000, and by all directors and executive officers as a group. Unless otherwise indicated, each of these stockholders has sole voting and investment power with respect to the shares beneficially owned. All share numbers have been adjusted to reflect the company's one for twenty-five reverse stock split at the close of business on November 30, 2001 and the company's one for four stock dividend on February 4, 2002.
Common Stock
-------------------------------------
Name and Address Number Percent
of Beneficial Owner of of
Shares Class
--------------------------------------------------------------------------
Sylvia M. Gilley(1 & 2) 153,843 35.1%
6211 Georgian Court
Dallas TX 75240
Victor L. Lund(3) 60,748 17.7%
816 NE 87th Avenue
Vancouver WA 98664
Floyd B. Rhoades(4) 38,119 11.7%
95 Argonaut Street
Aliso Viego CA 92656
Gene S. Bertcher(5) 2,650 >1.0%
14185 Dallas Parkway, Suite 650
Dallas TX 75254
William A. Shirley, Jr.(6) 32,026 9.0%
2621 State Street
Dallas TX 75204
Don C. Benton - -
Arrowhead Ranch
Route 1, Box 204
Clarksville TX 75426
American Realty Trust, Inc.(7) 4,874 1.4%
10670 North Central Expressway
Suite 300
Dallas TX 75231
Basic Capital Management, 7,063 2.1%
Inc.(7)
10670 North Central Expressway
Suite 600
Dallas TX 75231
Nevada Sea Investments, Inc.(7) 3,640 1.1%
10670 North Central Expressway
Suite 501
Dallas TX 75231
25
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International Health Products, 12,454 3.6% Inc.(7) 10670 North Central Expressway Suite 410 Dallas TX 75231 Davister Corporation (7) 12,560 3.7% 10670 North Central Expressway Suite 410 Dallas TX 75231 Institutional Capital 12,125 3.5% Corporation (7) 10670 North Central Expressway Suite 411 Dallas TX 75231 All executive officers and 62,891 18.4% directors as a group(five persons) |
(1) The shares are owned by a grantor trust for the benefit of Sylvia M. Gilley, the widow of James R. Gilley.
(2) Consists of 46,143 shares of common stock owned by JRG Investments Co., Inc., a corporation wholly owned by James R. Gilley ("JRG"); 5,500 shares of common stock owned by a grantor trust for the benefit of James R. and Sylvia M. Gilley; options to James R. Gilley to purchase 10,000 shares of common stock at $265.60 per share, exercisable through December 31, 2006; options to James R. Gilley to purchase 10,000 shares of common stock at $350.00 per share, exercisable through December 31, 2007; options to James R. Gilley to purchase 10,000 shares of common stock at $50.00 per share, exercisable through December 31, 2008; options to James R. Gilley to purchase 10,000 shares of common stock at $13.80 per share exercisable through December 31, 2009; options to James R. Gilley to purchase 10,000 shares of common stock at $7.50 per share, exercisable through December 31, 2010; options to James R. Gilley to purchase 10,000 shares of common stock at $12.80 per share, exercisable through December 31, 2011; a warrant to purchase 5,400 shares at an exercise price of $200.00 per share, exercisable through October 1, 2006, owned by the grantor trust for the benefit of Mr. and Mrs. Gilley; and 26,800 shares of common stock owned of record by Mrs. Gilley. Other than shares owned by the grantor trust, Mrs. Gilley disclaims any beneficial ownership of the shares owned by Mr. Gilley and JRG. Mr. Gilley and JRG disclaim beneficial ownership of the shares owned by Mrs. Gilley. Mr. Gilley has pledged all of his shares in JRG to Institutional Capital Corporation (formerly known as MS Holding Corp.), a non-affiliated entity, as collateral for repayment of a promissory note payable by JRG to Institutional Capital Corporation in the remaining principal amount of $2,996,373. (3) Consists of 60,748 shares of common stock owned by Mr. Lund.
(4) Consists of 31,341 shares of common stock owned by Mr. Rhoades, options to Mr., Rhoades to purchase 10,000 shares of common stock at $350.00 per share, and 58 shares owned by his spouse. Mr. Rhoades disclaims beneficial ownership of shares owned by his spouse.
(5) Consists of 1,650 shares of common stock owned by Mr. Bertcher and options to purchase 1,000 shares of common stock for $225.00 per share, all of which are vested.
(6) Includes 20,622 shares of common stock owned of record by Mr. Shirley and 11,404 shares of common stock which Mr. Shirley may acquire upon conversion of certain limited partnership units.
(7) Based on a Schedule 13D, dated April 8, 1998, filed by each of these entities and by Gene E. Phillips, each of these entities owns of record the number of shares set forth for such entity in the table above and each of such entities and Mr. Phillips disclaim they filed such Schedule 13D as a "group". According to the Schedule 13D, Basic Capital Management, Inc. may be deemed to beneficially own 15,578 shares, including the shares owned of record by American Realty Trust, Inc. and Nevada Sea Investments, Inc., and Mr. Phillips may be deemed to beneficially own all 52,717 shares owned of record and beneficially by these six entities. In the Schedule 13D, Mr. Phillips does not affirm beneficial ownership of any of these shares.
Certain Relationships and Related Transactions
The following paragraphs describe certain transactions between the company and any stockholder beneficially owning more than 5% of the outstanding common stock, the executive officers and directors of the company and members of the immediate family or affiliates of any of them, which occurred since the beginning of the 1998 fiscal year.
On November 19, 1993 the company sold 10,000 unregistered shares of its common stock to The April Trust, a grantor trust for the benefit of James R. Gilley, Chairman, President and Chief Executive Officer of the company, and his wife, at a price equal to the closing price of the shares on the American Stock Exchange on that date ($281.25) per share for consideration consisting of a $2,250,000 promissory note (for which Mr. Gilley is a co-maker) for the full purchase price thereof, of which $450,000 of the principal amount of the note is a recourse obligation of Mr. Gilley and the grantor trust and the balance of the note is non-recourse. The note bears interest at a rate of 5.5% per annum, which accrues and is payable along with all principal upon maturity on November 18, 2003, and is secured by a pledge of the stock back to the company to hold as collateral for payment of the note pending payment in full. On December 16,1996, the compensation committee extended the due date of the note to November 18, 2008.
Effective December 31, 2002 April Trust and the Company agreed to cancel the $2,250,000 promissory note. The 10,000 shares were returned to the Company. From an unrelated matter the Company has a note due James R Gilley's estate of $1,081,000. This note was reduced to $631,000 to reflect the $450,000 recourse portion of the $2,250,000 promissory note.
Gene S. Bertcher, an officer of the company, was indebted to the company for an aggregate of $92,500, for notes issued in 1993 as payment for shares of Common Stock. Mr. Bertcher's notes were secured by a pledge of 650 shares of common stock. Such notes bore interest at a rate equal to any cash or stock dividends declared on the purchased stock and were due in a single installment for each such note on or before October 1, 2002. Upon maturity of the note the stock was returned to the Company in full satisfaction of the obligation.
As part of the Wedgwood Acquisition and as an accommodation to the sellers to assist them to help achieve a tax-free acquisition, James R. Gilley and members of his family agreed to contribute a retail property in North Carolina to the company in exchange for 27,000 shares of the company's Series D preferred stock. Mr. Gilley and his family had owned the retail property for over five years. The consideration received by James R. Gilley and members of his family, valued at $3,375,000, was based upon an independent appraisal of the North Carolina shopping center. The Series D preferred stock is unregistered, has no trading market unless converted to common stock and is entitled to one vote per share on all matters to come before a meeting of stockholders. The Series D preferred stock bears a cumulative quarterly dividend of 9.5% per year, which approximates the cash flow Mr. Gilley and his family members were receiving from the retail property prior to its contribution to the company. Mr. Gilley and his family members and affiliates transferred all of the shares of Series D preferred stock to The April Trust effective April 1997. On July 1, 2001 the Series D Preferred Stock was converted to a note due June 30, 2004. The note bears interest at the rate of 10% per annum.
The Company owned a 56% interest in a partnership, which owned two assisted living communities in Oklahoma. The partnership leased the two communities to an independent third party for three years and entered into a future
sales contract that obligated the leasee to purchase the two communities at the end of the lease. If the transaction were completed as planned the Company would receive $1,120,000 for its 56% interest. To reduce its debt the Company entered into an agreement with April Trust to transfer its 56% interest to the April Trust in exchange for a reduction in the debt of $1,120,000, which reduced its obligation to April Trust to $2,255,000.
It is anticipated that in the future the company's executive officers will participate in the profits or losses derived from the company's involvement in real estate and senior living property partnerships. The company feels that allowing these officers to participate as partners instead of drawing large salaries will allow the company to hold down its overhead while rewarding those executive officers who help the company prosper.
It is the policy of the company that all transactions between the company and any officer or director, or any of their affiliates, must be approved by non-management members of the board of directors of the company. All of the transactions described above were so approved.
Based on their most recent evaluation, which was completed within 90 days of the filing of this Form 10-K, the Chief Executive Officer/Chief Financial Officer has concluded that the Company's disclosure controls and procedures are effective to insure that information required to be disclosed in reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no significant changes in the Company's internal controls or other factors that could significantly affect these disclosure controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
PART IV
(a) The following documents are filed as a part of the report:
(1) FINANCIAL STATEMENTS: The following financial statements of the Registrant and the Report of Independent Public Accountants therein are filled as part of this Report on Form 10-K:
Report of Independent Certified Public Accountants............F-1 Consolidated Balance Sheets...................................F-2 Consolidated Statement of Operations..........................F-4 Consolidated Statement of Changes in Stockholders' Equity.....F-5 Consolidated Statements of Cash Flows.........................F-6 Notes to Consolidated Financial Statements....................F-7 |
(2) FINANCIAL STATEMENT SCHEDULES: Other financial statement schedules have been omitted because the information required to be set forth therein is not applicable, is immaterial or is shown in the consolidated financial statements or notes thereto.
(b) REPORTS ON FORM 8-K: The Company did not file any reports on Form 8-K during the quarterly period ended December 31, 2002.
(c) Exhibits: The following exhibits are filed as part of, or incorporated by reference into, this Report on Form 10-K:
Exhibit
Number Description of Exhibit
----------------------------------------------------------------------
2.1.1 Stock Purchase Agreement between Villa Residential Care
Homes, Inc., William A. Shirley, Jr. and Greenbriar
Corporation ("Registrant") (filed as Exhibit 2.1.1 to
Registrant's Form 8-K Current Report on January 13, 1998 and
incorporated herein by this reference).
2.1.2 Exchange Agreement between Villa Residential Care
Homes-Corpus Christi South, L.P. and Greenbriar Corporation
("Registrant") (filed as Exhibit 2.1.2 to Registrant's Form
8-K Current Report on January 13, 1998 and incorporated
herein by this reference).
2.1.3 Exchange Agreement between Villa Residential Care
Homes-Granbury, L.P. and Greenbriar Corporation
("Registrant") (filed as Exhibit 2.1.3 to Registrant's Form
8-K Current Report on January 13, 1998 and incorporated
herein by this reference).
2.1.4 Exchange Agreement between Villa Residential Care Homes-Oak
Park, L.P. and Greenbriar Corporation ("Registrant") (filed
as Exhibit 2.1.4 to Registrant's Form 8-K Current Report on
January 13, 1998 and incorporated herein by this reference).
2.1.5 Exchange Agreement between Villa Residential Care Homes-Fort
Worth East, L.P. and Greenbriar Corporation ("Registrant")
(filed as Exhibit 2.1.5 to Registrant's Form 8-K Current
Report on January 13, 1998 and incorporated herein by this
reference).
2.1.6 Exchange Agreement between William A. Shirley, Jr., Lucy M.
Brody and C. Kent Harrington and Greenbriar Corporation
("Registrant") (filed as Exhibit 2.1.6 to Registrant's Form
8-K Current Report on January 13, 1998 and incorporated
herein by this reference).
2.1.7* Certificate of Decrease in Authorized and Issued Shares
dated November 27, 2001, and filed with the State of Nevada
on November 30, 2001.
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Exhibit
Number Description of Exhibit
----------------------------------------------------------------------
2.2.1 Stock Purchase Agreement between Lone Star Opportunity Fund,
L.P. and Greenbriar Corporation ("Registrant") filed as
Exhibit 2.2.1 of Registrant's Form 10-KSB for the year ended
December 31, 1997.
2.2.4 Form of Registration Rights Agreement between Registrant and
Lone Star Opportunity Fund, L.P. as regards 1,400,000 shares
of Registrant's Series F Senior Convertible Preferred Stock
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and 800,000 shares of Registrant's Series G Senior Non-Voting Preferred Stock filed as Exhibit 2.2.4 of Registrant's Form 10-KSB for the year ended December 31,
1997.
2.2.5 Agreement between Lone Star Opportunity Fund, L.P. and
Registrant regarding certain minimum values of Registrant's
stock filed as Exhibit 2.2.5 of Registrant's Form 10-KSB for
the year ended December 31, 1997.
3.1 Articles of Incorporation of Medical Resource Companies of
America ("Registrant") (filed as Exhibit 3.1 to Registrant's
Form S-4 Registration Statement, Registration No. 33-55968,
and incorporated herein by this reference).
3.1.1 Restated Articles of Incorporation of Greenbriar
Corporation.
3.2 Bylaws of Registrant (filed as Exhibit 3.2 to Registrant's
Form S-4 Registration Statement, Registration No. 33-55968,
and incorporated herein by this reference).
3.2.1 Amendment to Section 3.1 of the Bylaws of Registrant adopted
upon approval of the Merger (filed as Exhibit 3.2.1 to
Registrant's Form S-4 Registration Statement, Registration
No. 33-55968, and incorporated herein by this reference).
3.3 Certificate of Decrease in Authorized and Issued Shares.
4.1.2 Certificate of Designations, Preferences and Rights of
Preferred Stock dated May 7, 1993, relating to Registrant's
Series B Preferred Stock (filed as Exhibit 4.1.2 to
Registrant's Form S-3 Registration Statement, Registration
No. 33-64840, and incorporated herein by this reference.
4.1.4 Certificate of Designations, Preferences and Rights of
Preferred Stock dated March 15, 1996, relating to
Registrants' Series D Preferred Stock.
4.1.6 Certificate of Voting Powers, Designations, Preferences and
Rights of Registrant's Series F Senior Convertible Preferred
Stock dated December 31, 1997, filed as Exhibit 2.2.2 of
Registrant's Form 10-KSB for the year ended December 31,
1997.
4.1.7 Certificate of Voting Powers, Designations, Preferences and
Rights of Registrant's Series G Senior Non-Voting
Convertible Preferred Stock dated December 31, 1997, filed
as Exhibit 2.2.3 of Registrant's Form 10-KSB for the year
ended December 31, 1997.
10.3.2 Form of $62,500 Promissory Note dated December 27, 1991
payable to Registrant by Gene S. Bertcher representing the
purchase price for 250,000 shares (50,000 post December 1995
shares) of Registrant's Common Stock (filed as Exhibit
10.3.2 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.3.3 Form of Renewal of Promissory Note dated October 14, 1992
extending the maturity date of the Promissory Note
referenced in Exhibit 10.3.2 (filed as Exhibit 10.3.3 to
Registrant's Form S-4 Registration Statement, Registration
No. 33-55968, and incorporated herein by this reference).
10.3.4 Form of Security Agreement - Pledge (Non-recourse) between
Gene S. Bertcher and Registrant securing the Promissory Note
referenced in Exhibit 13.3.2. (Filed as Exhibit 10.3.4 to
Registrant's Form S-4 Registration Statement, Registration
No. 33-55968, and incorporated herein by this reference).
10.4 Form of Umbrella Agreement between Greenbriar Corporation,
James R. Gilley and Jon Harder, Sunwest Management, Inc. et
al.
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Exhibit
Number Description of Exhibit
----------------------------------------------------------------------
10.4.2 Form of $75,000 Promissory Note dated October 12, 1992
payable to Registrant by Robert L. Griffis representing the
purchase price for 150,000 shares (30,000 post December 1995
shares) of Registrant's Common Stock (filed as Exhibit
10.4.2 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.4.3 Form of Security Agreement - Pledge (Non-recourse) between
Registrant and Robert L. Griffis securing the Promissory
Note referenced in Exhibit 10.4.2 (filed as Exhibit 10.4.3
to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.6.1 Form of Stock Option to purchase 100,000 shares (20,000 post
December 1995 shares) of Registrant's Common Stock issued to
Oscar Smith on October 1, 1992 (filed as Exhibit 10.6.1 to
Registrant's Form S-4 Registration Statement, Registration
No. 33-55968, and incorporated herein by this reference).
10.6.2 Form of $50,000 Promissory Note dated October 1, 1992
payable to Registrant by Oscar Smith representing the
purchase price for 100,000 shares (20,000 post December 1995
shares) of Registrant's Common Stock (filed as Exhibit
10.6.2 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.6.3 Form of Security Agreement - Pledge (Non-recourse) between
Registrant and Oscar Smith securing the Promissory Note
referenced in Exhibit 10.6.2 (filed as Exhibit 10.6.3 to
Registrant's Form S-4 Registration Statement, Registration
No. 33-55968, and incorporated herein by this reference).
10.7.1 Form of Stock Option to purchase 80,000 shares (16,000 post
December 1995 shares) of Registrant's Common Stock issued to
Lonnie Yarbrough on October 12, 1992 (filed as Exhibit
10.7.1 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.7.2 Form of $40,000 Promissory Note dated October 12, 1992
payable to Registrant by Lonnie Yarbrough representing the
purchase price for 80,000 shares (16,000 post December 1995
shares) of Registrant's Common Stock (filed as Exhibit
10.7.2 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.7.3 Form of Security Agreement - Pledge (non-recourse) between
Registrant and Lonnie Yarbrough securing the Promissory Note
referenced in Exhibit 10.7.2 (filed as Exhibit 10.7.3 to
Registrant's Form S-4 Registration Statement, Registration
No. 33-55968, and incorporated herein by this reference).
10.9.6 Form of $62,500 promissory note dated December 29, 1994,
payable to Registrant by L.A. Tuttle representing the
purchase price of 50,000 shares (10,000 post December 1995
shares) of Registrant's Common Stock (filed as Exhibit
10.9.6 to Registrant's Form 10-KSB for the year ended
December 31, 1994).
10.9.7 Form of Security Agreement-Pledge between Registrant and
L.A. Tuttle securing the promissory note reference in
Exhibit 10.9.6 (filed as Exhibit 10.9.7 to Registrant's Form
10-KSB for the year ended December 31, 1994).
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10.13.1 Registrant's 1992 Stock Option Plan (filed as Exhibit 10.13
to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this
reference).
10.13.2 Registrant's 1997 Stock Option Plan (filed as Exhibit 4.1 to
Registrant's Form S-8 Registration Statement, Registration
No. 333-33985 and incorporated herein by this reference).
10.13.3 Registrant's 2000 Stock Option Plan (filed as Exhibit 4.1 to
Registrant's Form S-8 Registration Statement, Registration
No. 333-50868 and incorporated herein by this reference).
Bertcher
10.38 Stock Purchase Warrant dated December 31, 1996 between
registrant and The April Trust
10.39 Portfolio Divestiture Agreement between certain subsidiaries
of the Company, the Company, Health Care REIT and HCRI Texas
Properties, Ltd.
21.1* Subsidiaries of Registrant.
23.1* Consent of Grant Thornton.
99.2* Certification pursuant to Section 906 of the Sarbanes-Oxley
Act
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* Filed herewith.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Act"), the Company has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
GREENBRIAR CORPORATION
April 11, 2003 by: /s/ Gene S. Bertcher
------------------------
Gene S. Bertcher
President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREENBRIAR CORPORATION
April 11, 2003 by: /s/Gene S. Bertcher
---------------------------------------------------
Gene S. Bertcher, President, Chief Executive Officer
and Chairman of the Board of Directors
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In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
April 11, 2003 /s/ Don C. Benton
----------------------------------------------------
Don C. Benton, Director
April 11, 2003 /s/ Gene S. Bertcher
----------------------------------------------------
Gene S. Bertcher, President, Chief Executive Officer
and Director
April 11, 2003 /s/ Victor L. Lund
----------------------------------------------------
Victor L. Lund, Director
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GREENBRIAR CORPORATION
DECEMBER 31, 2002
CERTIFICATIONS
I, Gene S. Bertcher, Chief Executive Officer of Greenbriar Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Greenbriar Corporation ("Registrant");
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations, and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of the Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ GENE S. BERTCHER
--------------------------------------
Gene S. Bertcher
Chief Executive Officer
Chief Financial Officer
April 11, 2003
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Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Greenbriar Corporation
We have audited the accompanying consolidated balance sheets of Greenbriar Corporation (a Nevada corporation) and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2002. 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 auditing standards generally accepted in the United States of America. 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 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 consolidated financial position of Greenbriar Corporation and subsidiaries as of December 31, 2002 and 2001, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note O to the consolidated financial statements, on January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ Grant Thornton, LLP ----------------------- Dallas, Texas March 28, 2003 |
Greenbriar Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31,
ASSETS 2002 2001
-------- --------
CURRENT ASSETS
Cash and cash equivalents $ 661 $ 1,246
Short-term investments -- 1,098
Accounts receivable - trade 22 106
Receivables from affiliated partnership -- 311
Notes receivable 1,238 --
Prepaid expenses -- 572
Other current assets, net 323 291
-------- --------
Total current assets 2,244 3,624
NOTES RECEIVABLE, from sale of properties 7,997 6,400
Less deferred gains (6,127) (6,090)
-------- --------
1,870 310
NOTE RECEIVABLE FROM AFFILIATE PARTNERSHIP -- 1,600
PROPERTY AND EQUIPMENT, AT COST
Land and improvements 678 4,430
Buildings and improvements 6,850 32,675
Equipment and furnishings 1,387 3,134
-------- --------
8,915 40,239
Less accumulated depreciation and amortization (2,282) (6,498)
-------- --------
6,633 33,741
DEFERRED INCOME TAX BENEFIT 1,161 2,350
DEPOSITS 311 1,730
OTHER ASSETS, NET 405 667
-------- --------
$ 12,624 $ 44,022
======== ========
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Greenbriar Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Amounts in thousands, except share amounts)
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
-------- --------
CURRENT LIABILITIES
Current maturities of long-term debt $ 113 $ 4,316
Accounts payable - trade 405 1,042
Accrued expenses 367 1,116
Other current liabilities 668 467
-------- --------
Total current liabilities 1,553 6,941
LONG-TERM DEBT, including amounts to related
parties of $2,853,000 8,479 16,693
INVESTMENT IN AFFILIATE 46 96
DEFERRED GAIN 740 --
FINANCING OBLIGATIONS -- 10,815
OTHER LONG-TERM LIABILITIES 455 208
-------- --------
Total liabilities 11,273 34,753
CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock (liquidation value of $100) 1 1
Common stock, $.20 par value; authorized, 4,000,000
shares; issued and outstanding, 344,000 shares in 2002
and 359,000 in 2001 72 75
Additional paid-in capital 54,923 56,828
Accumulated deficit (53,645) (45,268)
-------- --------
1,351 11,636
Less stock purchase notes receivable -- (2,367)
-------- --------
1,351 9,269
-------- --------
$ 12,624 $ 44,022
======== ========
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The accompanying notes are an integral part of these statements.
Greenbriar Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share amounts)
Year ended December 31,
2002 2001 2000
--------- --------- ---------
Revenue
Assisted living operations $ 4,422 $ 23,568 $ 33,482
Operating expenses
Assisted living operations 2,233 15,006 19,892
Lease expense 1,618 2,391 4,165
Facility depreciation and amortization 321 2,035 2,894
Termination of employment contracts -- 1,349 --
General and administrative 2,329 4,875 5,448
Write-down of assets 266 1,887 7,461
--------- --------- ---------
6,767 27,543 39,860
--------- --------- ---------
Operating loss (2,345) (3,975) (6,378)
Other income (expense)
Interest and dividend income 412 212 254
Interest expense (840) (3,280) (3,771)
Gain on sale of partnership interest - related party 930 -- --
Other income (expense), net (1,153) 16,602 (220)
--------- --------- ---------
(651) 13,534 (3,737)
--------- --------- ---------
Earnings (loss) before income taxes (2,996) 9,559 (10,115)
Income tax expense 749 2,824 --
--------- --------- ---------
Earnings (loss) from continuing operations (3,745) 6,735 (10,115)
Discontinued operations
Loss from operations (627) (317) (508)
Loss on disposal, including taxes of $440 (4,001) -- --
--------- --------- ---------
Loss from discontinued operations (4,628) (317) (508)
--------- --------- ---------
NET EARNINGS (LOSS) (8,373) 6,418 (10,623)
Preferred stock dividend requirement (4) (160) (4,105)
--------- --------- ---------
Net earnings (loss) allocable to common stockholders $ (8,377) $ 6,258 $ (14,728)
========= ========= =========
Basic and diluted earnings (loss) per share
Continuing operations $ (9.76) $ 16.32 $ (37.82)
Discontinued operations (13.57) (.79) (1.35)
--------- --------- ---------
Net earnings (loss) per share $ (23.33) $ 15.53 $ (39.17)
========= ========= =========
Weighted average number of common shares outstanding:
Basic and diluted 359,000 403,000 376,000
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The accompanying notes are an integral part of these statements.
Greenbriar Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands)
Stock
Preferred stock Common stock Additional purchase
-------------------- ------------------- paid in Accumulated notes
Shares Amount Shares Amount capital deficit receivable Total
-------- -------- -------- -------- -------- -------- -------- --------
Balance at January 1, 2000 2,876 $ 289 365 $ 76 $ 61,520 $(36,798) $ (2,367) $ 22,720
Dividends on preferred stock,
including accretion of $2,649 -- -- -- -- 2,649 (4,105) -- (1,456)
Redemption of preferred stock (355) (35) -- -- (4,725) -- -- (4,760)
Reduction of redemption obligation -
preferred stock -- -- -- -- 775 -- -- 775
Net loss -- -- -- -- -- (10,623) -- (10,623)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 2000 2,521 254 365 76 60,219 (51,526) (2,367) 6,656
Accretion of redemption obligation -
preferred stock -- -- -- -- (179) -- -- (179)
Conversion of preferred stock to
common stock (1,845) (185) 53 11 174 -- -- --
Conversion of preferred stock
to debt (675) (68) -- -- (3,307) -- -- (3,375)
Dividends on preferred stock -- -- -- -- -- (160) -- (160)
Common stock acquired -- -- (59) (12) (79) -- -- (91)
Net earnings -- -- -- -- -- 6,418 -- 6,418
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 2001 1 1 359 75 56,828 (45,268) (2,367) 9,269
Write-off of stock purchase notes
receivable -- -- (15) (3) (1,905) -- 1,905 (3)
Dividend on preferred stock -- -- -- -- -- (4) -- (4)
Other -- -- -- -- -- -- 12 12
Stock purchase notes receivable
reclassified as a reduction of
related party debt -- -- -- -- -- -- 450 450
Net loss -- -- -- -- -- (8,373) -- (8,373)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 2002 1 $ 1 344 $ 72 $ 54,923 $(53,645) $ -- $ 1,351
======== ======== ======== ======== ======== ======== ======== ========
|
The accompanying notes are an integral part of this statement.
Greenbriar Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year ended December 31,
--------------------------------
2002 2001 2000
-------- -------- --------
Cash flows from operating activities
Net earnings (loss) $ (8,373) $ 6,418 $(10,623)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 321 2,329 3,740
Loss from affiliate 612 -- --
(Gain) loss on sale of properties 3,561 (16,635) (49)
Employment contract termination -- 1,349 --
Write down of impaired assets 266 1,887 7,461
Deferred income taxes 1,189 2,400 --
Changes in operating assets and liabilities
Accounts receivable - trade 395 252 (288)
Other current and noncurrent assets (927) 809 (750)
Accounts payable and other liabilities (929) (1,391) 750
-------- -------- --------
Net cash provided by (used in)
operating activities (3,885) (2,582) 241
Cash flows from investing activities
Purchase of property and equipment (285) (24,294) (1,796)
Proceeds from sale of investments 1,098 -- --
Purchase of investments -- (1,098) --
Proceeds from sales of properties 7,460 33,550 1,014
-------- -------- --------
Net cash provided by (used in)
investing activities 8,273 8,158 (782)
Cash flows from financing activities
Proceeds from borrowings 1,730 15,788 3,956
Payments on debt (6,699) (18,045) (3,725)
Dividends on preferred stock (4) (160) (1,457)
Extinguishment of preferred stock redemption obligation -- (4,200) (4,760)
-------- -------- --------
Net cash used in financing activities (4,973) (6,617) (5,986)
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents (585) (1,041) (6,527)
Cash and cash equivalents at beginning of year 1,246 2,287 8,814
-------- -------- --------
Cash and cash equivalents at end of year $ 661 $ 1,246 $ 2,287
======== ======== ========
|
The accompanying notes are an integral part of these statements.
Greenbriar Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Greenbriar Corporation's business consists of development and operation of assisted living communities that provide housing, healthcare, hospitality and personal services to elderly individuals. At December 31, 2002, the Company had three communities in operation in three states.
A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows:
The consolidated financial statements include the accounts of Greenbriar Corporation and its majority-owned subsidiaries (collectively, the Company) and are prepared on the basis of accounting principles generally accepted in the United States of America. All significant intercompany transactions and accounts have been eliminated.
Assisted living community revenue is reported at the estimated net realizable value based upon expected amounts to be recovered from residents, third party payors, and others for services rendered. Services provided by certain of the Company's communities are reimbursed under various state assistance plans.
Depreciation is provided for in amounts sufficient to relate the cost of property and equipment to operations over their estimated service lives, ranging from 3 to 40 years. Depreciation is computed by the straight-line method.
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
The Company considers all short-term deposits and money market investments with a maturity of less than three months to be cash equivalents.
Notes receivable are identified as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the note agreements. The accrual of interest is discontinued on such notes, and no income is recognized until all past due amounts of principal and interest are recovered in full. No notes were deemed to be impaired at December 31, 2001 and 2002.
The Company reviews its long-lived assets and certain identifiable intangibles for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In reviewing recoverability, the Company estimates the future cash flows expected to result from use of the assets and eventually disposing of them. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on the asset's fair value.
The Company determines the fair value of assets to be disposed of and records the asset at the lower of fair value less disposal costs or carrying value. Assets are not depreciated while held for disposal.
Certain prior year amounts have been reclassified to conform with the current year presentation.
The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) in its primary financial statements and has provided supplemental disclosures required by Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation" and by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure an Amendment of SFAS No. 123."
Options were granted at market during 2001 and 2000, are exercisable immediately, and expire 10 years from date of grant.
SFAS 123 requires disclosure of pro forma net earnings (loss) and pro forma net earnings (loss) per share as if the fair value method had been applied in measuring compensation cost for stock-based awards.
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
Reported and pro forma net earnings (loss) and net earnings (loss) per
share amounts are set forth below (in thousands, except per share data):
2002 2001 2000
-------- -------- --------
Net earnings (loss) allocable to common stockholders
As reported $ (8,377) $ 6,258 $(14,728)
Deduct: total stock-based compensation under
fair value based method for all awards (464) (369) (325)
-------- -------- --------
Pro forma $ (8,841) $ 5,889 $(15,080)
======== ======== ========
Net earnings (loss) per share
As reported $ (23.33) $ 15.53 $ (39.17)
Pro forma $ (24.63) $ 14.61 $ (40.11)
|
The fair value of these options was estimated at the date of grant during 2001 and 2000 using the Black-Scholes option pricing model with the following weighted-average assumptions: no dividends; expected volatility of 317 percent in 2001, and 87 percent for 2000; risk-free interest rates of 5.0 percent for 2001, and 5.6 percent for 2000; and weighted average expected lives of 6.8 years.
Basic earnings (loss) per common share is based on the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed based on the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. In 2002, 2001 and 2000, stock options for approximately 70,000 shares were excluded from diluted shares outstanding because their effect was anti-dilutive.
The Company accounts for its investment in affiliate, in which it is a limited partner, by the equity method of accounting.
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
The Company declared a one-for-twenty-five reverse stock split effective December 1, 2001. Due to the reduced stock float available in the public market, the Company declared a twenty-five percent stock dividend to stockholders of record on January 25, 2002. All share data has been restated to give effect to the stock split and stock dividend.
Gains on sales of real estate are recognized to the extent permitted by SFAS No. 66, "Accounting for Sales of Real Estate." Until the requirements of SFAS No. 66 have been met for full profit recognition, sales are accounted for by the installment or cost recovery method, whichever is appropriate.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses how and when to measure impairment on long-lived assets and how to account for long-lived assets that an entity plans to dispose of either through sale, abandonment, exchange, or distribution to owners. The Company adopted SFAS No. 144 as of January 1, 2002. See Note O for a discussion of the impact on the Company from the adoption of SFAS No. 144.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities." FIN 46 clarifies the application of Accounting Research Bulletin 51, "Consolidated Financial Statements." For certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling financial interest ("variable interest entities"). Variable interest entities within the scope of FIN 46 will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity's expected losses, receives a majority of its expected returns, or both. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Our initial determination is that the adoption of the provisions of FIN 46 will not have a material impact upon our financial condition or results of operations.
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 is not expected to have a material effect on the Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company has adopted the disclosure provisions of this statement.
NOTE B - CASH FLOW INFORMATION
Supplemental information on cash flows is as follows (in thousands):
Year ended December 31,
------------------------
2002 2001 2000
------ ------ ------
Interest paid $2,215 $4,958 $5,752
Income taxes paid 129 82 13
Noncash investing and financing activities (in thousands):
Assets transferred in settlement of preferred stock
redemption obligations, net of mortgage loans
of $36,981 -- 6,837 --
Notes received from sale of assets 1,050 6,400 --
Note given in connection with purchase of
property by affiliated partnership 1,600 --
Common stock received in payment of note receivable 80 --
Common stock received in settlement of preferred stock
obligation 11 --
|
NOTE C - EMPLOYEE STOCK PURCHASE NOTES RECEIVABLE
December 31,
---------------
2002 2001
------ ------
(In thousands)
Note from James R. Gilley, chief executive officer, principal
and interest at 5.50%, due November 2008 $ -- $2,250
Others -- 117
------ ------
$ -- $2,367
====== ======
|
On November 19, 1993 the company sold 10,000 unregistered shares of its common stock to The April Trust, a grantor trust for the benefit of James R. Gilley, former Chairman, President and Chief Executive Officer of the company, and his wife, at a price equal to the closing price of the shares on the American Stock Exchange on that date ($281.25) per share for consideration consisting of a $2,250,000 promissory note (for which Mr. Gilley is a co-maker) for the full purchase price thereof, of which $450,000 of the principal amount of the note is a recourse obligation of Mr. Gilley and the grantor trust, and the balance of the note is non-recourse. The note bears interest at a rate of 5.5% per annum, which accrues and is payable along with all principal upon maturity on November 18, 2008, and is secured by a pledge of the stock back to the company to hold as collateral for payment of the note pending payment in full. The stock purchase note was presented in the balance sheet as a deduction from stockholders' equity as of December 31, 2001.
Effective December 31, 2002, the Company canceled the nonrecourse portion of stock purchase note receivable. The 10,000 shares were returned to the Company. The $450,000 recourse portion of the note was realized through an agreement of the parties to offset the Company's receivable against its note payable to Mr. Gilley.
NOTE D - DEFERRED GAINS ON SALE OF PROPERTY
During 2001, the Company sold three properties for cash of $30,804,000 and three tax-free notes for a total of $6,400,000 bearing interest at 9.5%. The notes mature on April 1, 2032, March 20, 2037, and August 1, 2031.
The repayment of the notes is limited to the cash flow of the respective properties either from operations, refinancing or sale. The Company has deferred gains in the amount of $6,127,000 and $6,090,000 in 2002 and 2001, respectively. The deferred gains and interest income will be recognized as cash is received.
NOTE E - EMPLOYMENT CONTRACT TERMINATIONS
In January 1997, the Company negotiated employment contracts with the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the Company. Both individuals had been employed by the Company since 1989. The employment contracts called for combined annual salaries of $640,000 per year and provided that, if the contracts were terminated or amended, the individuals would be entitled to a cash payment of three years salary for the CEO and two years salary for the CFO. In light of the reduced size of the Company, the independent directors and the officers in October 2001 agreed to modify the employment agreements with the two officers. The two officers each agreed to continue their roles in the Company for $12,000 per year for three years. The revisions in the contracts triggered contract termination payments requiring the Company to immediately pay the two officers $1,740,000. However, the two officers agreed to accept non-interest bearing notes due December 31, 2004. These notes have certain acceleration provisions if the Company violates the terms of the revised employment contracts. For accounting purposes, interest has been imputed on the notes at 8.5%, resulting in a discount of $391,000. The net amount of the notes of $1,349,000 was expensed in 2001. At December 31, 2002, the balance of the notes payable, net of discount of $260,000, was $1,048,000.
NOTE F - AFFILIATED PARTNERSHIPS
In October 2001, the Company became a 56% limited partner in Corinthians Real Estate Investors LP (CREI), a partnership formed to acquire two properties. The general partner is a limited liability corporation whose controlling member was James Gilley. Mr. Gilley was the former CEO of the Company. Mr. Gilley's estate has a 25.9% interest, the general partner has a .1% interest, the Company's chief financial officer has a 10.5% interest, and other employees of the Company have interests aggregating 7.5%. In October 2001, CREI acquired a retirement community for approximately $9,100,000 and in January 2002, it acquired an assisted living community for approximately $2,800,000.
The Company issued a $1,600,000 note to the seller in 2001 as partial payment for the purchase of the retirement community. CREI gave the Company a $1,600,000 note in consideration for payment of that amount of the purchase price. The note bears interest at 8.75% and was due December 30, 2003. The balance of the purchase price was funded by borrowings by CREI from a third party in the amount of $7,840,000, which was guaranteed by the Company. CREI also had debt in the amount of $3,975,000 at December 31, 2001 collateralized by the assisted living community that was guaranteed by the Company. CREI paid both of the latter two amounts in 2002.
The Company accounts for its investment in CREI by the equity method. The Company recorded losses of $692,338 and $95,947 for 2002 and 2001, respectively. The Company had a receivable of $311,000 at December 31, 2001, resulting from advances to CREI.
In September 2002, CREI sold its two properties for cash and notes and paid off its debt. As part of the proceeds, CREI received a note for $1,600,000 which was transferred to the Company in satisfaction of its $1,600,000 note receivable from CREI. CREI also assigned to the Company a $400,000 participation in another note in payment of other CREI debt to the Company.
NOTE F - AFFILIATED PARTNERSHIPS - Continued
The Company transferred the $1,600,000 note it received in 2002 to the original owner of the retirement community in payment of the Company's $1,600,000 debt. The Company guaranteed payment of the $1,600,000 note.
CREI recognized a gain on sale in the amount of $1,322,000. The Company has deferred recognition of its share ($740,000) of the gain because of the aforementioned guaranty. CREI has deferred a gain on sale in the amount $994,000 that will be recognized on the installment method.
In January 2002 the Company became a 56% limited partner in a partnership, Muskogee Real Estate Investors (MREI), which acquired two assisted living communities in Muskogee, OK, including one community acquired from the Company. In September 2002 MREI leased the two communities to a third party for three years. The lessee has committed to purchase the two properties during the three-year period for $6,000,000. The current debt on the property is approximately $4,000,000.
The Company had a note to Sylvia M. Gilley, wife of the former CEO of the Company, for $3,375,000. In November 2002, the Company transferred its 56% interest in MREI to Mrs. Gilley in exchange for a reduction of $1,120,000 on the debt and a one-year extension on the due date of the Company's note to Mrs. Gilley. The Company recognized a gain of $929,956 on the transaction.
The Company accounted for its investment in MREI using the equity method. The Company recorded income of $80,215 during 2002.
In September 2002 the Company entered into an agreement with an independent third party to jointly acquire properties in the future. The third party entity is affiliated with the various entities that acquired or leased the properties from CREI and MREI mentioned above. Affiliates of this group also purchased properties in Harlingen, TX and Sherman, TX from the Company on September 30, 2002 and acquired the Company's interest in entities that operated properties in Roswell, NM and Seaside, OR.
The agreement provides that the Company will be allowed to participate in the acquisition of twelve communities and receive a 50% partnership interest. The Company has agreed to pay $660,000, payable at $55,000 per month from October 2002 through September 2003, to cover the due diligence expenses incurred by the third party. The Company's $660,000 obligation has been accrued and charged to expense in 2002. The agreement further provides that at any time during the twenty-four months subsequent to the formation of a partnership and the acquisition of properties, the third party can purchase the Company's partnership interest in each of the 12 properties for a stipulated amount per property.
NOTE F - AFFILIATED PARTNERSHIPS - Continued
Following are unaudited condensed financial statements of CREI at December 31, 2001 and 2002 and the period from October 1, 2001 through December 31, 2001 and the year ended December 31, 2002 (in thousands):
Balance Sheets
2002 2001
------- -------
Current assets $ 67 $ 93
Property and equipment -- 9,358
Notes receivable 994 --
Other assets 171 361
------- -------
$ 1,232 $ 9,812
======= =======
Current liabilities $ 248 $ 67
Other liabilities -- 401
Note payable to Greenbriar Corporation -- 1,600
Deferred gain 994 --
Mortgage payable -- 7,840
------- -------
1,242 9,908
Partners' deficit (10) (96)
------- -------
$ 1,232 $ 9,812
======= =======
Statements of Operations
Revenue $ 2,233 $ 347
Expenses
Operating 1,284 171
Depreciation 747 46
General and administrative 111 22
Interest 1,328 204
------- -------
3,470 443
------- -------
Gain on sale of properties 1,322 --
------- -------
Net income (loss) $ 85 $ (96)
======= =======
|
NOTE G - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate values at December 31, 2002 and 2001:
Cash and cash equivalents - The carrying amount approximates fair value
because of the short maturity of these instruments.
Long-term debt - The fair value of the Company's long-term debt is
estimated based on market rates for the same or similar issues. The
carrying value of long-term debt approximates its fair value.
Notes receivable - The fair value of the note receivable from an affiliate
partnership is estimated to approximate fair value based on its short
maturity. It is not practical to estimate the fair value of notes
receivable from sale of properties because no quoted market exists and
there are no comparable debt instruments to provide a basis for valuation.
NOTE H - LONG-TERM DEBT
Long-term debt is comprised of the following (in thousands):
December 31,
---------------
2002 2001
------ ------
Notes payable to financial institutions maturing through 2015; fixed and
variable interest rates ranging from 5.25% to 10.5% ; collateralized
by real property, fixtures, equipment and the assignment of rents $3,956 $8,947
Notes payable to individuals and companies maturing through 2023;
variable and fixed interest rates ranging from 7% to 12%;
collateralized by real property, personal property, fixtures,
equipment and the assignment of rents 1,753 1,655
Mortgage notes payable to financial institutions maturing through 2010;
interest rates ranging from 7.5% through 14.5%;
collateralized by real property and equipment -- 5,253
Notes payable to wife of former Chief Executive Officer, bearing
interest at 10% and maturing on July 1, 2004 2,255 3,375
Notes payable to executive officers, noninterest-bearing and maturing
December 31, 2004, net of discount of $260 and $391 at December 31,
2002 and 2001, respectively, representing interest imputed at 8.5% 598 1,349
|
NOTE H - LONG-TERM DEBT
December 31,
-----------------
2002 2001
------- -------
Line of credit with bank, bearing interest at 7.94% and maturing
April 1, 2002; collateralized by certificates of deposit $ -- $ 430
Line of credit with bank, bearing interest at 8% and maturing
March 31, 2005 30 --
------- -------
8,592 21,009
Less current maturities 113 4,316
------- -------
$ 8,479 $16,693
======= =======
Aggregate annual principal maturities of long-term debt at December 31,
2002 are as follows (in thousands):
2003 $ 113
2004 5,154
2005 131
2006 143
2007 922
Thereafter 2,579
-------
$ 9,042
=======
|
NOTE I - FINANCING OBLIGATIONS
The Company operated two communities that are financed through sale-leaseback obligations. At the end of the tenth year of the fifteen-year leases, 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 on its books and record depreciation. Payments under the lease agreements are $1,167,000 for each year through 2009. The Company sold its interest in entities that operated these communities during 2002.
NOTE J - OPERATING LEASES
The Company leases certain communities under operating leases which expire through 2011 and has operating leases for equipment and office space. The leases generally provide that the Company pay property taxes, insurance, and maintenance.
Future minimum payments following December 31, 2002 are as follows (in thousands):
2003 $ 1,620
2004 1,620
2005 1,620
2006 1,426
2007 1,365
Thereafter 7,187
--------
$ 14,838
========
Lease expense in 2002, 2001 and 2000 was $1,650, $3,139 and $4,912,
respectively.
|
NOTE K - INCOME TAXES
At December 31, 2002, the Company had net operating loss carryforwards of approximately $19,300,000, which expire between 2002 and 2020. However, approximately $7,900,000 of these net operating loss carryforwards have limitations that restrict utilization to approximately $1,530,000 for any one year.
The following is a summary of the components of income tax expense of continuing operations (in thousands):
Year ended
December 31,
------------------------------
2002 2001 2000
-------- -------- --------
Current - state $ -- $ 424 $ --
Deferred - federal 749 2,400 --
-------- -------- --------
$ 749 $ 2,824 $ --
======== ======== ========
|
NOTE K - INCOME TAXES - Continued
Deferred tax assets and liabilities were comprised of the following (in
thousands):
December 31,
2002 2001
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 7,308 $ 6,554
Note receivable 680 680
Alternative minimum tax credit carryforwards 235 235
Accounts receivable -- 20
Accrued expenses 2,285 604
Financing obligations -- 1,802
Other 583 493
-------- --------
Total deferred tax assets 11,091 10,388
Deferred tax liabilities - property and equipment (3,198) (5,021)
Valuation allowance (6,732) (3,017)
-------- --------
Net deferred tax asset $ 1,161 $ 2,350
======== ========
Following is a reconciliation of income tax expense attributable to
continuing operations with the amount of tax computed at the federal
statutory rate of 34% (in thousands):
Year ended December 31,
-----------------------------
2002 2001 2000
------- ------- -------
Tax expense (benefit) at the statutory rate $(1,019) $ 3,250 $(3,439)
State taxes net of federal benefit -- 380 --
Expiration of carryforwards -- -- 433
Change in deferred tax asset valuation allowance,
attributable to continuing operations 1,768 (431) 2,071
Nondeductible loss on write-down of properties -- -- 400
Nondeductible amortization -- -- 150
Other -- (375) 385
------- ------- -------
Tax expense $ 749 $ 2,824 $ --
======= ======= =======
|
Changes in the deferred tax valuation allowance result from assessments made by the Company each year of its expected future taxable income available to absorb its carryforwards. The Company believes that it is more likely than not that the net deferred tax asset at December 31, 2002 of $1,161,000 will be realized. However, this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accordingly, the ultimate realization of the net deferred tax asset could be less than the carrying amount.
NOTE L - STOCKHOLDERS' EQUITY
Outstanding Preferred Stock
Preferred stock consists of the following (amounts in thousands):
Year ended
December 31,
---------------
2002 2001
------ ------
Series B cumulative convertible preferred stock, $.10 par value; liquidation
value of $100; authorized, 100 shares; issued and outstanding, 1 share $ 1 $ 1
====== ======
|
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 $500 per share in 1993 to $1,111 per share by 2002. The right to convert expires April 30, 2003. Dividends at a rate of 6% are payable in cash or preferred shares at the option of the Company.
Series D preferred stock had a liquidation value of $5 per share and was convertible into common stock at $200 per share. Dividends were payable in cash at a rate of 9.5%. The stock was exchanged for a $3,375,000 note in 2001. See Note H.
Series F and Series G preferred shares were sold to LSOF Pooled Equity, L.P. (LSOF) 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 provided 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 (the Cash Payment) to LSOF equal to the market price deficiency on the shares received upon conversion. Conversion was required by January 2001.
The 14% guaranteed return was accreted by a charge to accumulated deficit. The amount of the Cash Payment that would be required assuming conversion at each balance sheet date is transferred from stockholders' equity to Preferred Stock Redemption Obligation.
During 2000, the Company made payments totaling $4,760,000 to redeem 355,150 shares of the Series G preferred stock, pursuant to an agreement that it would redeem additional shares from the proceeds generated from the sale of assets or from refinancings.
NOTE L - STOCKHOLDERS' EQUITY - Continued
The Company received a notice dated October 30, 2000 from LSOF, advising that it was electing to convert the outstanding shares of preferred stock into common stock. Such notice set forth LSOF'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 $350 per share to $13.80 per share, and that the Company was required to issue 1,373,768 shares of common stock upon conversion.
The Company did not agree that the conversion price should be adjusted, and LSOF brought a lawsuit against the Company. In October 2001, LSOF and the Company entered into a settlement agreement. Pursuant to the agreement, (1) the Company transferred 11 assisted living communities to LSOF subject to the assumption by LSOF of debt in the amount of $36,981,000, (2) the Company paid LSOF $4,000,000 in cash, (3) LSOF transferred to the Company the 53,000 common shares received upon conversion of the Series F and G preferred shares, (4) the preferred stock redemption obligation of $27,167,000 was cancelled, and (5) each agreed to release all claims against the other. The Company recognized a gain of $16,129,000 on the transfer of assets to LSOF.
In 1992, the Company established a long-term incentive plan (the 1993 Plan) for the benefit of certain key employees. Under the 1993 Plan, up to 10,875 shares of the Company's common stock are reserved for issuance. Options granted to employees under the 1993 Plan become exercisable over a period as determined by the Company and may be exercised up to a maximum of 10 years from date of grant. In 1997, the Company adopted the 1997 Stock Option Plan, under which up to 25,000 shares of the Company's common stock are reserve for issuance. In 2000, the Company adopted the 2000 Stock Option Plan, under which up to 25,000 shares of the Company's common stock are reserve for issuance.
The Company has also granted options to an officer during 1996 through 2001, aggregating 50,000 shares not covered by either plan. These options were granted at market, were exercisable immediately, and expire 10 years from date of grant.
NOTE L - STOCKHOLDERS' EQUITY - Continued
Information with respect to stock option activity is as follows:
Weighted
average
exercise
Shares price
-------- -------
Outstanding at January 1, 2000 113,615 $144.20
Granted 10,000 7.60
Cancelled, rescinded, or annulled (53,090) 65.40
Forfeitures (100) 315.00
-------- -------
Outstanding at December 31, 2000 70,425 $183.80
Granted 10,000 12.80
-------- -------
Outstanding at December 31, 2001 80,425 $162.56
Expired (2,525) 365.15
-------- -------
Outstanding at December 31, 2002 77,900 $155.99
======== =======
Options exercisable at December 31, 2000 70,250 $183.20
======== =======
Options exercisable at December 31, 2001 80,425 $162.56
======== =======
Options exercisable at December 31, 2002 77,900 $155.99
======== =======
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Weighted average fair valufe per share of options granted during 2001 and 2000 was $7.60 and $6.00, respectively.
Additional information about stock options outstanding at December 31, 2002 is summarized as follows:
------------------------ ----------- ------------------ ---------------- $7.50 to $13.80 30,000 8.0 $ 11.37 $13.81 to $50.00 10,000 6.0 50.00 $200.00 to $265.60 17,900 3.6 240.84 $350.00 20,000 5 350.00 |
NOTE M - OTHER INCOME (EXPENSE)
Other income (expenses) consists of the following: (amounts in thousands)
Year ended December 31,
--------------------------------
2002 2001 2000
-------- -------- --------
Gain on sale of properties $ -- $ 16,635 $ --
Property acquisition due diligence expenses (660) -- --
Other (493) (33) (220)
-------- -------- --------
$ (1,153) $ 16,602 $ (220)
======== ======== ========
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NOTE N - WRITE-OFF OF IMPAIRED ASSETS
In 1992, the Company sold four nursing homes to Southern Care Corporation (Southern Care), 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 during 2000 that the financial condition of Southern Care had deteriorated, that it was delinquent on mortgage payments on the homes, and that the first mortgage holder foreclosed on the homes in June 2000. The Company wrote off the entire $4,525,000 during 2000.
The Company decided to dispose of two assisted living communities in 2000 that were not meeting operating performance expectations. These communities were written down to net realizable value at June 30, 2000. One of these communities was disposed of in the quarter ending September 30, 2000 with no additional write-off required. Also, a third community whose operations have 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 in 2000.
NOTE N - WRITE-OFF OF IMPAIRED ASSETS - Continued
During 2001, the Company identified four properties that were not meeting performance expectations. These properties are in a geographic region where, after the transfer to LSOF, the Company does not have a significant presence. In the fourth quarter of 2001, the Company wrote these properties down to their net realizable value of $5,066,000 with a charge to earnings of $1,887,000. One of these properties was sold in 2002. The Company continues to hold the other three properties.
During 2002, the Company wrote off $266,000 related to a property it is attempting to sell.
NOTE O - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE
In October 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes FASB SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the accounting and reporting provisions for disposals of a segment of a business as addressed in APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and addresses various implementation issues of SFAS No. 121. In addition, SFAS No. 144 extends the reporting requirements of discontinued operations to include components of an entity that have either been disposed of or are classified as held for sale. The Company adopted SFAS No. 144 as of January 1, 2002.
During 2002, the Company disposed of six properties. Revenues for the six properties were $4,698,000, $7,293,000, and $7,779,000 in 2002, 2001, and 2000, respectively.
The Company's adoption of SFAS No. 144 resulted in the presentation of the net operating results of these qualifying properties sold during 2002, as loss from discontinued operations for all periods presented. Losses on sale of these properties totaling $4,001,000 (including income tax expense of $440,000) are reflected as losses on sales of real estate from discontinued operations in the accompanying consolidated statements of operations. Financial statements for 2000 and 2001 have been reclassified to reflect the operations of these properties as discontinued operations. The adoption of SFAS No. 144 did not have an impact on net earnings or loss.
Pursuant to SFAS No. 144, the results of operations and gains or losses on properties sold prior to the adoption of SFAS No. 144, are not reflected in discontinued operations. Therefore, the presentation of results of operations for 2002 is not comparable with 2000 and 2001.
NOTE P - CONTINGENCIES
The Company is defendant in various lawsuits generally arising in the
ordinary course of business. Management of the Company is of the opinion
that these lawsuits will not have a material effect on the consolidated
results of operations, cash flows or financial position of the Company.
As discussed in Note F, the Company is guarantor of debt of a third party in
the amount of $1,600,000.
NOTE Q - QUARTERLY DATA (UNAUDITED)
The table below reflects the Company's selected quarterly information for
the years ended December 31, 2002 and 2001. Certain 2002 and 2001 amounts
have been reclassified to conform to the current presentation of
discontinued operations.
Year ended December 31, 2002
----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Revenue $ 1,237 $ 1,185 $ 1,035 $ 965
Operating expenses 1,810 1,634 1,520 1,803
Net loss (458) (1,037) (4,473) (2,405)
Loss allocable to common shareholders (458) (1,037) (4,473) (2,405)
Loss per common share - basic and diluted (1.28) (2.89) (12.46) (6.69)
Year ended December 31, 2001
----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Revenue $ 8,164 $ 7,448 $ 6,398 $ 1,558
Operating expenses 8,122 8,278 6,604 4,539
Net earnings (loss) (276) (1,611) (480) 8,785
Preferred stock dividend requirement (80) (80) -- --
Net earnings (loss) allocable to common shareholders (356) (1,691) (480) 8,785
Net earnings (loss) per common share - basic and diluted (.85) (4.05) (1.15) 24.51
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EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
American Care Communities, Inc.
CareAmerica, Inc.
Crown Pointe Development-Corona (LP)
Crown Pointe, Inc.
Graybrier, Inc.
Greenbriar Financial Corporation
Kellway Corporation
King City Retirement Corporation
Liberty Acquired Brain Injury Habilitation Services, Inc.
Liberty Group, LP
Real Estate Investors, LLC
Residential Healthcare Properties, Inc.
Retirement Real Estate, Inc.
Rose Terrace of Wendell, Inc.
Senior Living Management Payroll Company
Senior Living Management, Inc.
SLM-Crown Pointe, Inc.
SLM-Oak Park, Inc.
SLM-Sweetwater Springs, LLC
SLM-Wedgwood Terrace, Inc.
Sweetwater Springs Group, LLC
Villa Residential Care Homes-Arlington I,
LP Villa Residential Care Homes-Corpus
Christi South LP Villa Residential Care Homes-Ft. Worth East, LP
Villa Residential Care Homes-Granbury, LP
Villa Residential Care Homes-Oak Park, LP
Wedgwood Realty Corporation Wedgwood Retirement Inns, Inc.
Wedgwood Terrace, Inc.
Windsor Group, LLC
Windsor House Florence, Inc.
Windsor House Greenville, LLC
EXHIBIT 99.2
In connection with the filing of the Annual Report on Form 10-K for the Year Ended December 31, 2002 (the "Report") by Greenbriar Corporation ("Registrant"), the undersigned hereby certifies that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.
/s/ Gene S. Bertcher
------------------------
Gene S. Bertcher
Chief Executive Officer
Chief Financial Officer
April 11, 2003
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EXHIBIT 23.1
We have issued our report dated March 28, 2003 accompanying the consolidated financial statements included in the Annual Report of Greenbriar Corporation on Form 10-K for the year ended December 31, 2002. We hereby consent to the incorporation by reference of said report in the Registration Statements of Greenbriar Corporation on Form S-4 (File No. 28525) and on Form S-8 (File No. 33-50868 and 33-33985).
/s/ GRANT THORNTON LLP ---------------------- Dallas, Texas March 28, 2003 |