ITEM 1. Business.
General
Manor Care, Inc. ("Manor Care"), a Delaware corporation organized in August 1981, is a holding company that conducts its business through the Manor Care Hotel Division ("Hotel Division") and three principal subsidiaries, Manor Healthcare Corp. ("Healthcare"), Vitalink Pharmacy Services, Inc. ("Vitalink") and Choice Hotels International, Inc. ("Choice"). Healthcare and its subsidiaries have been engaged since October 1968 in the business of developing, owning and managing nursing centers, which provide skilled nursing and convalescent care principally for residents over the age of 65. Healthcare owns approximately 82.3% of Vitalink, a public company that operates institutional pharmacies. Healthcare also owns and operates an acute care general hospital, rehabilitation centers, assisted living centers and nursing assistant training schools. Choice franchises the use of the "Quality," "Comfort," "Clarion," "Sleep," "Rodeway," "Econo Lodge" and "Friendship" trademarks and other related trademarks and services. The Hotel Division is engaged in the business of owning and operating hotels in the United States under the Choice trademarks. Other subsidiaries of Manor Care are engaged in owning, operating and franchising hotels in foreign countries.
In fiscal year 1995, Manor Care derived approximately 32.6% of its total revenues through Medicare and Medicaid programs; aside from the foregoing, Manor Care has no few or single customers upon whom it is dependent.
Industry Segments
The Business Segment Information set forth on page 28 of the Company's 1995 Annual Report is hereby incorporated by reference.
Manor Healthcare Corp. - Healthcare Operations
Manor Care, through Healthcare and its subsidiaries, owns, operates or manages 179 nursing centers (including 18 medical and physical rehabilitation centers), which provide high acuity services, skilled nursing care, intermediate nursing care, custodial care and assisted living, principally for residents over the age of 65. Manor Care and its subsidiaries also own and operate an acute care hospital, 18 pharmacies, 5 nursing assistant training schools and 15 assisted living centers.
Nursing Center Operations
Healthcare's nursing centers provide, in general, five types of services:
-- High acuity services - for persons who require complex medical and physical rehabilitation services (patients who would otherwise be treated in an acute care hospital setting).
-- Skilled nursing care - for persons who require 24-hour-a-day professional services of a registered nurse or a licensed practical nurse.
-- Intermediate care - for persons needing less intensive nursing care than that provided to those requiring skilled care.
-- Custodial care - for persons needing a minimum level of care.
-- Assisted living - for persons needing some supervision and assistance with personal care.
Services provided to all patients include the required type of nursing care, room and board, special diets, occupational, speech, physical and recreational therapy and other services that may be specified by the patient's physician, who directs the admission, treatment and discharge of that patient.
Each high acuity, skilled and intermediate nursing center is under the direction of a state-licensed nursing center administrator supported by other professional personnel, such as a medical director, social worker, dietitian and recreation staff. Nursing departments in each such facility are under the supervision of a director of nurses who is state licensed.
The nursing staffs are composed of other registered nurses and licensed practical nurses, as well as nursing assistants. Staff size and composition vary depending on the size and location of each facility.
Manor Care has developed a Quality Assurance Program to ensure that high standards of care are maintained in each center. The Quality Assurance Department is composed of a director, registered nurses, dietitians, nutrition specialists, an environmental services specialist and a recreational therapist. These staff specialists set corporate standards for delivery of care, direct the Quality Improvement Program, and provide consulting and educational services to the centers.
Manor Care's nursing centers range in bed capacity from 52 to 240 beds, have an aggregate bed capacity of 23,830 beds, and achieved an occupancy rate of 90% during the 1995 fiscal year. Manor Care's nursing centers are located in 28 states: Arizona, California, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Missouri, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Virginia, Washington and Wisconsin.
The nursing centers are modern structures generally of wall-bearing masonry with fire resistive or protective floor and roof suspension systems. Most have been designed to permit private and semi-private patient room accommodations, and rooms at some facilities may be converted to accommodate up to four beds. Most facilities have individually controlled heating and air-conditioning units. Each nursing center contains a fully equipped kitchen, an isolation room, day room areas, administrative offices and most contain a physical therapy room. Many of Manor Care's centers have specialized wings for assisted living, Alzheimer's patients, individuals with catastrophic injuries, and persons desiring extra amenities and activities. Manor Care believes all of the nursing centers and related equipment are in good condition and well maintained.
Manor Care has reorganized its healthcare operations into three new divisions. The Long-Term Care Division, in addition to operating general purpose skilled nursing centers, operates MedBridge facilities offering post- acute care for patients who no longer need hospital care. Ten MedBridge facilities and eight MedBridge units within skilled nursing centers currently operate in Colorado, Delaware, Illinois, Maryland, New Jersey, Ohio, Pennsylvania and Virginia. During 1995, the Company opened one new 100-bed nursing center in Ohio, and additions totaling 142 beds to 8 existing centers. The Company also acquired three nursing centers located in Illinois and Maryland for approximately $26,560,000. Manor Care currently has 2 new nursing centers with 120 beds each under construction in Florida and Illinois. Additions totaling 107 beds to 3 existing centers also are under construction.
The Assisted Living Division operates Springhouse Senior Residences (assisted living facilities designed for the frail elderly) and Arden Courts (assisted living facilities for persons with early to mid-stage
Alzheimer's who do not yet need nursing care). There are 12 Springhouse facilities, located in California, Florida, Maryland, Michigan, North Carolina and Ohio, which include 2 facilities converted from hotels and opened during the year and 6 newly acquired facilities. Six facilities were acquired during the year for approximately $30,185,000. There are five Arden Courts in Illinois, Maryland and Pennsylvania, three that opened in fiscal 1995 and one each in June and July 1995.
The Alternate Site Services Division is exploring the entry into new businesses such as home healthcare and hospice programs.
Patients seeking the services of the nursing centers come from a variety of sources, and are principally referred by hospitals and physicians. Most of Manor Care's nursing centers participate in state Medicaid and in the federal Medicare program (see "Federal and State Assistance Programs"). However, Manor Care attempts to locate and operate its nursing centers in a manner designed to attract patients who pay directly to the facilities for services without benefit of any government assistance program ("private patients").
As a general rule, the profit margin is higher with private patients than with patients to whom services are rendered with government assistance programs. The following table sets forth certain information concerning revenues from government assistance programs for all of Manor Care's health care operations during fiscal year 1995:
*Represents the estimated difference between private patient billing rates and amounts recoverable under government programs.
The following table sets forth certain information concerning occupancy and revenues of Manor Care's nursing centers and hospital during fiscal year 1995:
Hospital Operations
Manor Care owns and operates Mesquite Community Hospital in Mesquite, Texas, a Dallas suburb. The 172 licensed bed facility, which opened in 1978, is a general medical/surgical acute care hospital fully accredited by the Joint Commission for the Accreditation of Health Care Organizations. Services include obstetrics, emergency services, coronary/intensive care, day surgery, skilled nursing, and geriatric psychiatry. Fully equipped, modern ancillary and diagnostic services include MRI, CT, nuclear medicine, cardiac catheterization and ultrasound with doppler. The medical staff, representing virtually every medical and surgical specialty, admit and refer patients into the hospital from their private office practices. Patient services are reimbursed from traditional insurance programs, managed care (HMO and PPO), Medicare and Medicaid. The hospital is in the midst of a 30,000 square foot, two-story addition, which will be completed in Spring 1996 and house a new emergency services department and a four operating suite day surgery center.
Pharmacy Operations
Healthcare owns 82.3% of Vitalink Pharmacy Services, Inc. ("Vitalink"), a publicly traded company that owns and operates 18 pharmacies located in California, Colorado, Florida, Illinois, Indiana, Iowa, Maryland, New Jersey, Ohio, Oregon, Pennsylvania, Texas and Wisconsin.
Vitalink operates institutional pharmacies, which provide, in general, three types of services:
-- Customized filling of prescription and non-prescription medications for individual patients pursuant to physician orders delivered to nursing facilities.
-- Consultant pharmacist services to help ensure quality patient care through monitoring and reporting on prescription drug therapy.
-- Infusion therapy services, consisting of a product (nutrient, antibiotic, chemotherapy or other drugs or fluids) and its administration by tube, catheter or intravenously. Vitalink prepares and delivers the product, which is administered by nursing center staff.
Pursuant to various master agreements, a portion of Vitalink's business is with Manor Care. As of May 31, 1995, Vitalink had contracts to serve 16,000 Manor Care beds and 26,400 beds not affiliated with Manor Care, resulting in revenues of $54,734,000 and $57,523,000, respectively, for fiscal 1995.
In April 1995, Vitalink purchased a pharmacy business in San Antonio, Texas, for $2,451,000, and in July 1995, Vitalink purchased a pharmacy business in Loveland, Colorado, for $2,400,000. In June 1994, Vitalink sold its last retail pharmacy, located in Appleton, Wisconsin, for $144,000.
Training School Operations
Medical Aid Training Schools, Inc., a subsidiary of Healthcare, operates five nursing assistant training schools located in New York. The schools provide training for entry level nursing assistants for nursing facilities and home health care.
Regulation
Manor Care's healthcare facilities are subject to certain federal statutes and regulations and to regulatory licensing requirements by state and local authorities. All of Manor Care's facilities are currently so licensed. In addition, the facilities are subject to various local building codes and other ordinances. It is anticipated that government regulation of the healthcare industry will become more comprehensive in the future. The extent of the impact of such increased regulation on Manor Care's operations and earnings cannot be predicted.
State and local agencies survey all nursing centers on a regular basis to determine whether such centers are in compliance with governmental operating and health standards and conditions for participation in government medical assistance programs. Such surveys include reviews of patient utilization of healthcare facilities and standards for patient care. Manor Care endeavors to maintain and operate its facilities in compliance with all such standards and conditions. Manor Care believes that at this time, none of its facilities is in violation of any applicable regulation that would threaten the operation of its business or materially affect the standard of care provided.
Federal and State Assistance Programs
Substantially all Manor Care's nursing centers and the Hospital are currently certified to receive benefits provided under the Federal Health Insurance for the Aged Act (commonly referred to as "Medicare"), and under programs administered by the various states to provide medical assistance to the medically indigent ("Medicaid"). Both initial and continuing qualification of a nursing center or hospital to participate in such programs depends upon many factors including accommodations, equipment, services, patient care, safety, personnel, physical environment, and adequate policies, procedures and controls.
Services under Medicare consist of nursing care, room and board, social services, physical and occupational therapies, drugs, biologicals, supplies, and surgical, ancillary diagnostic and other necessary services of the type provided by extended care or acute care facilities. Under the Medicare program, the federal government pays the reasonable direct and indirect allowable costs (including depreciation and interest) of the services furnished.
Under the various Medicaid programs, the federal government supplements funds provided by the participating states for medical
assistance to medically indigent persons. The programs are administered by the applicable state welfare or social service agencies. Although Medicaid programs vary from state to state, typically they provide for the payment of certain expenses, up to established limits, at rates based generally on cost reimbursement principles.
Funds received by Manor Care under Medicare and Medicaid are subject to audit with respect to the proper application of various payment formulas. Such audits can result in retroactive adjustments of revenue from these programs, resulting in either amounts due to the government agency from Manor Care or amounts due Manor Care from the government agency. Manor Care believes that its payment formulas have been properly applied and that any future adjustments will not have a material adverse impact on its financial position or results of operations.
Both the Medicare and Medicaid programs are subject to statutory and regulatory changes, administrative rulings, interpretations of policy, intermediary determinations and governmental funding restrictions, all of which may materially increase or decrease the rate of program payments to healthcare facilities. Manor Care can give no assurance that payments under such programs will in the future remain at a level comparable to the present level or be sufficient to cover the operating and fixed costs allocable to such patients.
Competition
Manor Care's nursing centers compete on a local and regional basis with other long-term healthcare providers, some of which have greater financial resources or operate on a nonprofit basis. The degree of success with which Manor Care's nursing facilities compete varies from location to location and is dependent on a number of factors. Manor Care believes that the quality of care provided, reputation and physical appearance of facilities, and, in the case of private patients, charges for services, are significant competitive factors. Accordingly, it seeks to meet competition in each locality by establishing a reputation within the local medical communities for competent and competitive nursing center services. There is limited, if any, competition in price with respect to Medicaid and Medicare patients, since revenues for services to such patients are strictly controlled and based on fixed rates and cost reimbursement principles.
Manor Care's Hospital encounters competition in the Mesquite, Texas area where it competes for community and physician acceptance with other hospitals. Vitalink's pharmacies compete with other local distributors of pharmaceuticals.
Hotel Division - Domestic Lodging Operations
The Hotel Division operated 48 hotels containing a total of 7,971 rooms as of May 31, 1995. During 1995, the Hotel Division purchased 16 hotels containing 2,339 rooms in Arizona, Florida, Maryland, Massachusetts,
Michigan, Ohio, Pennsylvania, South Carolina, Texas and Virginia for an aggregate purchase price of approximately $59,800,000.
The hotels operate under the "Clarion," "Comfort," "Quality," "Sleep," "Econo Lodge" and "Rodeway" trade names and are located in Alabama, Arizona, California, Florida, Georgia, Louisiana, Maryland, Massachusetts, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Utah and Virginia. All of the hotels are owned by Manor Care or its subsidiaries except two hotels located in California, which are leased.
During 1995, lodging revenues and expenses included food and beverage sales of $8,121,000 and costs of sales of $6,866,000.
QH Europe Partnership - Foreign Lodging Operations
Quality Hotels Europe, Inc. and Choice Hotels International, Inc. ("Choice"), subsidiaries of Manor Care, formed QH Europe Partnership in 1994 to own, operate and franchise hotels in Europe. Partnership subsidiaries own three hotels in Germany and one in England containing 610 rooms, which operate under the "Comfort" or "Quality" trade names.
During 1994, Partnership subsidiaries acquired certain assets of a French hotel chain, consisting primarily of franchise rights to approximately 100 hotels (now using the "Comfort" trade name) plus two owned and six leased hotels. During 1995, operations grew to 139 franchisees and eight leased hotels.
Choice Hotels International, Inc. - Franchise Operations
Manor Care owns 100% of the Preferred Stock and approximately 94.5% of the Common Stock of Choice, which franchises the use of the "Quality," "Comfort," "Clarion," "Sleep," "Econo Lodge," "Friendship" and "Rodeway" trademarks.
Services provided to franchisees include national and regional meetings and periodic seminars to provide information on hotel operations and recent developments in the industry, training programs for franchisees and their employees, advertising and marketing, dissemination of directories of franchised locations, participation in a national reservations system and agreements with credit card companies.
Choice also offers its franchisees interior design and decorating services and purchasing services for hotel furniture, fixtures and supplies. During 1995, the revenues and expenses of Choice included hotel supplies sales of $18,227,000 and costs of sales of $13,946,000.
The standard franchise agreement currently offered by Choice for Clarion Hotels (luxury), Quality Inns and Quality Suites (mid-priced), Comfort Inns and Comfort Suites (luxury-budget) and Sleep Inns (economy hotels with standardized design) provides for an initial fee of $300 per guest room with a $40,000 minimum ($35,000 for Quality). Choice sells Econo Lodge and Rodeway Inn franchises (economy brands) for an initial fee
of $250 per guest room ($25,000 minimum). In addition, franchisees are required to pay a royalty fee of 3% to 5% of gross room revenues (depending on brand) and assessments for reservations and marketing services at rates that may be changed to reflect inflation and actual costs incurred. The agreement normally is for a 20-year term.
Choice has discontinued selling new Friendship Inn franchises, and many existing Friendship Inns have been repositioned to the Rodeway brand.
Choice supplies disclosure statements containing information for prospective franchisees in accordance with regulations of the Federal Trade Commission ("FTC"). In addition to the FTC regulations, certain states have requirements for registration of franchisors and disclosure requirements similar to the FTC regulations.
Choice and an affiliate of Journey's End Corporation, a Canadian lodging management company, each own a 50% interest in a corporation that franchises Choice brands in Canada. Choice also has franchised hotels in more than 25 other foreign countries, including England, Ireland, Norway, France, Italy, Germany, India, New Zealand, Australia, Japan, Thailand and Mexico.
As of May 31, 1995, the seven hotel chains comprised 2,835 open and operating hotels with 245,669 rooms, as set forth below:
Competition
The above hotels compete with other hotels in nearby locations, some of which are affiliated with chains that are more widely known or offer different types of services. Demand for accommodations at both franchised and company-owned hotels is affected by such factors as the availability of accommodations in the local area and national and regional economic conditions. The operation of hotels may be seasonal, with a large percentage of revenues generated in the summer months.
In the sale of franchises, Choice competes with many other hotel franchisors, some of which have greater financial resources and offer different fee structures and franchise services. However, Choice believes that its continued growth, innovative hotel brands and successful reservations and marketing services enhance its competitive position.
Employees
As of May 31, 1995, Manor Care employed approximately 27,812 full and part-time employees, 23,135 of whom were employed in healthcare operations, 4,225 of whom were employed in lodging and franchise operations, and the remainder in Manor Care's headquarters.
From time to time, some of Manor Care's nursing centers and the Hospital experience shortages of professional nursing help which may require Manor Care to seek temporary employees through employment agencies at an increased cost. Manor Care does not believe that use of these contract employees has had a material adverse effect on its financial position to date.
A majority of the employees are covered by the federal minimum wage laws, and a few employees are represented by labor unions. Attempts have been made from time to time to unionize employees of certain other facilities. Manor Care believes that it enjoys a good relationship with its employees.
Insurance
Manor Care maintains property insurance on its healthcare and lodging facilities. Manor Care insures some of its liability exposures and self insures, either directly or indirectly through insurance arrangements requiring it to reimburse insurance carriers, some of its liability risks other than catastrophic exposures. Physicians and dentists practicing at the Hospital are responsible for their own professional liability insurance coverage. Manor Care insures its workers' compensation risks in some states and self insures in others.
ITEM 2.

ITEM 2. Properties.
As of May 31, 1995, Manor Care owned, leased or managed 179 nursing and rehabilitation centers in 28 states and one acute care general hospital in Texas, as indicated below:
As of May 31, 1995, Vitalink leased 18 pharmacies in 13 states and its corporate offices in Naperville, Illinois. As of May 31, 1995, Manor Care owned or leased 62 hotels consisting of 48 domestic hotels containing 7,971 guest rooms and 14 hotels containing 1,160 rooms located in foreign countries. Manor Care also owned 15 assisted living centers.
Manor Care owns its three headquarters buildings in Silver Spring, Maryland; a fourth building in Silver Spring that is used by employees and leased to third parties; a building in Phoenix, Arizona, that serves as Western Regional Office of Choice; and several undeveloped parcels. Manor Care also leases office space as needed to accommodate regional employees.
Forty-eight (48) nursing centers and hotels have been pledged to secure related mortgage and capital lease obligations.
ITEM 3.

ITEM 3. Legal Proceedings.
- On September 10, 1985, the U.S. Environmental Protection Agency sued Healthcare and other defendants in U.S. District Court, District of New Jersey, seeking clean-up costs at Lipari Landfill. A subsidiary that Healthcare acquired in its 1981 acquisition of Cenco Incorporated was alleged to have transported wastes to the landfill in the 1960's. The USEPA and the defendants have entered into a Consent Decree requiring the defendants to contribute approximately $52 million for certain clean-up costs. Healthcare's share of the settlement is approximately $2.6 million, most of which is covered by insurance. The USEPA is seeking additional funds from the defendants in connection with a future phase of the clean-up.
- On October 30, 1989, the New Jersey Department of Environmental Protection sued Manor Care and other defendants in U.S. District Court, District of New Jersey, seeking clean-up costs at Kramer Landfill where the Cenco subsidiary allegedly transported wastes. On September 10, 1990, Transtech Industries, Inc. and other parties sued numerous defendants, including the Cenco subsidiary, in U.S. District Court, District of New Jersey, for contribution in connection with clean-up of Kin-Buc Landfill. The State of New Jersey also has issued administrative directives ordering numerous parties, including Manor Care as the alleged successor to the Cenco subsidiary, to contribute to the clean-up of various other landfills.
Manor Care also is subject to other regulatory and legal actions, investigations or claims for damages that arise from time to time in the ordinary course of business. Manor Care is defending the claims against it and believes that these proceedings will not have a material adverse effect on its financial condition or results of operations.
ITEM 4.

ITEM 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended May 31, 1995.
EXECUTIVE OFFICERS OF MANOR CARE, INC.
The name, age, title, present principal occupation, business address and other material occupations, positions, offices and employment of each of the executive officers of Manor Care, Inc. ("Manor Care") are set forth below. The business address of each executive officer is 10750 Columbia Pike, Silver Spring, Maryland 20901, unless otherwise indicated.
Stewart Bainum, Jr. (49) Chairman of the Board of Manor Care and Manor Healthcare Corp. ("Healthcare") since March 1987; Chief Executive Officer of Manor Care since March 1987 and President since June 1989; Vice Chairman of the Board of Vitalink Pharmacy Services, Inc. ("Vitalink") since February 1995; Vice Chairman of the Board of Manor Care and subsidiaries from June 1982 to March 1987; Director of Manor Care since August 1981, of Vitalink since September 1991, of Healthcare since 1976 and of Choice Hotels International, Inc. and its predecessors ("Choice") since 1977; Chief Executive Officer of Healthcare since June 1989 and President from May 1990 to May 1991; Chairman of the Board and Chief Executive Officer of Vitalink from September 1991 to February 1995 and President and Chief Executive Officer from March 1987 to September 1991; Chairman of the Board of Choice from March 1987 to June 1990.
Stewart Bainum. (76) Vice Chairman of the Board of Manor Care and subsidiaries since March 1987; Chairman of the Board of Manor Care from August 1981 to March 1987, Chief Executive Officer from July 1985 to March 1987, President from May 1982 to July 1985; Chairman of the Board of Healthcare from 1968 to March 1987 and a Director since 1968; Director of Vitalink from September 1991 to September 1994; Chairman of the Board of Choice from 1972 to March 1987 and a Director since 1963; Chairman of the Board of Realty Investment Company, Inc. since 1965.
Donald J. Landry. (46) President of Choice since January 1995; President of Manor Care Hotel Division since March 1992; various executive positions with Richfield Hotel Management, Inc. and its predecessors for more than 15 years, including President of MHM Corporation.
Weldon Humphries. (58) Senior Vice President-Real Estate and Development of Manor Care since August 1981, of Choice since February 1981 and of Healthcare since December 1980.
James A. MacCutcheon. (43) Senior Vice President, Chief Financial Officer and Treasurer of Manor Care, Healthcare and Choice since September 1993; Senior Vice President-Finance and Treasurer from October 1987 to September 1993; Treasurer of Vitalink since September 1992 and a Director since September 1994; Senior Vice President-Finance and Treasurer and a Director of Vitalink from October 1987 to September 1991.
James H. Rempe. (65) Senior Vice President, General Counsel and Secretary of Manor Care since August 1981, of Choice since February 1981 and of Healthcare since December 1980; Secretary of Vitalink since January 1983 and a Director since September 1994; Senior Vice President and a Director of Vitalink from January 1983 to September 1991.
Charles A. Shields. (51) Senior Vice President-Human Resources of Manor Care since September 1992; Vice President-Human Resources from October 1989 to September 1992.
Leigh C. Comas. (29) Vice President-Finance of Manor Care since August 1995; Assistant Treasurer since September 1993; Manager of Corporate Finance from June 1992 to September 1993; previously a business student at Stanford University Graduate School of Business.
Donald E. Feltman. (40) Vice President-Development of Manor Care since April 1993; previously employed for five years as Director of Development of Marriott Corporation's Senior Living Services Division.
Larry R. Godla. (38) Vice President-Construction of Manor Care since March 1993; Director of Construction from January 1990 to March 1993.
Gary L. Henson. (41) Vice President-Information Resources since September 1993; Director of Information Resources from April 1993 to September 1993; Director of Data Processing Operations from April 1991 to April 1993; Director of Corporate Information Systems from December 1988 to April 1991; various other data processing positions from June 1982 to December 1988.
Alan Marsh. (47) Vice President-Risk Management of Manor Care since September 1986; Vice President-Administration from November 1984 to September 1986.
Gregory D. Miller. (41) Vice President-Strategic Planning of Manor Care since May 1992; Vice President-Marketing and Strategic Planning of Healthcare since March 1995; various planning and marketing positions at Marriott Corporation for more than five years, including Vice President-Planning and Business Development for Courtyard by Marriott.
John M. Sabin. (40) Vice President-Finance and Assistant Treasurer of Manor Care since December 1993; Vice President- Mergers and Acquisitions of Choice since May 1995; Vice President, Corporate Mergers and Acquisitions at Marriott Corporation for more than five years.
Margarita Schoendorfer. (46) Vice President-Controller of Manor Care, Healthcare and Choice since November 1990; Corporate Controller from April 1986 to November 1990; Assistant Corporate Controller from August 1981 to April 1986.
Donald C. Tomasso. (50) President, Long-Term Care Division, of Healthcare since February 1995 and a Director of Healthcare since June 1991; President and Chief Operating Officer of Healthcare from May 1991 to February 1995; Chairman and Chief Executive Officer of Vitalink since February 1995 and Vice Chairman from September 1991 to February 1995; previously employed by Marriott Corporation for more than five years, including as Executive Vice President/General Manager of the Roy Rogers Division.
Joseph Buckley. (47) President, Assisted Living Division, of Healthcare since February 1995; Senior Vice President- Information Resources and Development of Manor Care from June 1990 to February 1995; Vice President-Information Resources from July 1989 to June 1990; Vice President-Real Estate from September 1983 to July 1989.
Mark L. Gildea. (43) President, Alternate Site Services Division, of Healthcare since December 1994; Vice President, Managed Care Marketing, from December 1993 to December 1994; Executive Vice President of Option Care, Inc. from October 1992 to December 1993; previously employed by Caremark, Inc. for over 10 years, including as Area Vice President.
Donna L. DeNardo. (43) President and Chief Operating Officer of Vitalink since September 1991; Vice President of Healthcare and Vice President and General Manager of Vitalink from December 1989 to September 1991; various management positions with Healthcare from 1977 to December 1989 including Senior Regional Director of Nursing Facility Operations. Business address: 1250 East Diehl Road, Naperville, Illinois 60563.
Robert C. Hazard, Jr. (60) Co-Chairman of Choice since January 1995 and a Director since December 1980; Chairman from June 1990 to January 1995 and Chief Executive Officer from December 1980 to January 1995; President from December 1980 to June 1990.
Gerald W. Petitt. (49) Co-Chairman of Choice since January 1995 and a Director since December 1980; President from June 1990 to January 1995 and Chief Operating Officer from December 1980 to January 1995; Executive Vice President from December 1980 to June 1990.
PART II
ITEM 5.

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The shares of Manor Care's Common Stock are listed and traded on the New York Stock Exchange. Information on the high and low sales prices of Manor Care's Common Stock during the past two years is included on page 28 of the 1995 Annual Report and is incorporated herein by reference.
As of July 31, 1995, there were 3,131 record holders of Manor Care Common Stock.
Information required on the frequency and amount of any dividends declared during the past two years with respect to such Common Stock is included on page 28 of the 1995 Annual Report and is incorporated herein by reference.
PART IV
3. Exhibits
(b) No report on Form 8-K was filed during the last quarter of the fiscal year ended May 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 28, 1995 MANOR CARE, INC.
By:/s/ James A. MacCutcheon ----------------------------- James A. MacCutcheon Senior Vice President- Finance and Treasurer
Pursuant to the requirements of 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.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF MANOR CARE, INC.:
We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Manor Care, Inc.'s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated June 20, 1995. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index in Item 14(a)2 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C., June 20, 1995
Schedule II
MANOR CARE, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(in thousands of dollars)
(A) Represents reserves of acquired companies.
EXHIBIT INDEX
EXHIBIT INDEX Continued


ITEM 1. - HISTORY AND BUSINESS OF THE COMPANY
The Company was incorporated in Michigan in 1979 and commenced business in 1980. Originally, the Company was formed as a passive investor in oil and gas drilling ventures with Reef Petroleum Corporation (RPC) which was the operator of the wells drilled. However, in September of 1983, RPC filed a Chapter 11 Petition in the Bankruptcy Court of the Western District of Michigan and since then has liquidated all of its assets in a final bankruptcy action. In 1986, the Company's involvement with RPC was terminated.
During 1987, the Company entered into a Management Agreement with Penteco Corporation to analyze the Company's financial position and provide management services to the Company. The Agreement called for an 18 month option to Penteco to purchase an additional 1,000,000 shares at $.31 per share and a 36 month option to purchase an additional 1,000,000 shares at $.50 per share. In 1990, the Management Agreement was extended for a three year period through September, 1993. Penteco has exercised part of their option for 1,000,000 shares at $.31 per share. Effective January 1993, the Management Agreement with Penteco Corporation was terminated, and those responsible for management duties became salaried employees or advisors to the Company.
In an exchange of shares in 1987, the Company purchased from Penteco a 12% interest in the general partners portion of the 1985-A Limited Partnership (Penteco East Central Pipeline) and from Penteco a 10% interest in Lincoln Gas and Oil Marketing Corporation for a total price of $290,000. Penteco East Central Pipeline is a gas gathering and transmission system located in the area of Southern Kansas and Northern Oklahoma. In 1991, Penteco East Central Pipeline was sold to Consolidated Capital of North America. Penteco received, and is holding for the benefit of the partnership, 450,000 shares of $1.00 preferred stock of Consolidated Capital. In addition, Penteco acquired for the partnership, a 10 percent working interest after debt service in the Tulare Lakes Field from Chevron. Lincoln Gas and Oil Marketing Corporation is located in Boston, Massachusetts and is involved in the development and supply of gas to co-generation facilities. In a restructuring of Lincoln Gas and Oil Marketing, Penteco provided an opportunity for General Energy to increase its holdings to 20 percent of Lincoln Gas and Oil Marketing and also to receive a 10 percent interest in Eastern Pacific Energy Corporation located in Los Angeles, California. During 1989 and 1992, the Company determined the value of these investments have suffered permanent declines of $185,000 and $103,950 respectively. Consequently, these investments are now carried at a value of $1,050.
It is the Company's intention to continue to drill or participate in the drilling of exploratory and development wells in the states of Michigan, Texas, Louisiana, Mississippi and Oklahoma in an effort to develop its oil and gas reserves. In order to facilitate this plan, the Company has purchased an interest in various oil and gas leases.
During 1995, the Company participated in and operated a Niagaran horizontal well in Otsego County. The well tested both oil and gas and plans are to extend the well horizontally to further improve the production rates. The Company has interest in several gas wells that were hooked up in 1995 in South Texas and also acquired and operated a Niagaran gas discovery in Grand Traverse County which was drilled in early 1996.
DESCRIPTION OF BUSINESS OF THE COMPANY
Identification of Prospects and Prospect Acquisition The Company will, as in the past, selectively maintain its lease inventory on the basis of its own information, the interpretation of the Company's seismic, geological and geophysical information and such additional information as may be acquired. The Company also is actively seeking and participating in exploration projects with other companies by purchasing working interest on a selective basis.
The following table provides information as to the expiration of the Company's leases (assuming extension by payment of delay rentals to the extent possible); and is intended to supply information required pursuant to industry Guide 2 Paragraph 5. All of the following leases are located in the state of Michigan.
Acres Years of Expiration Gross Net ___________________ ____________________ 1995 560.000 160.000 1996 332.203 200.000 1997 160.000 40.000 1998 0.000 0.000
Geology - Seismic Testing The Company prefers, where possible, to act on the basis of geophysical as well as geological information. A seismic survey of the areas covered by its inventory of leases is undertaken and evaluated. The Company's Geology Department seeks to utilize both seismic and geological data (primarily the results from nearby drilling) to locate geological traps which may contain hydrocarbons.
Drilling, Completion and Operations of Producing Wells 1. During 1995, the Company participated in 1 wildcat prospect, which was successful. The Company also participated in the recompletion and workover of several wells in our 20 well Tulare Lakes Field in California. 2. The rights and obligations of the Company, as operator, are governed by a Lease Development Agreement (or, in the case of a participation commencing with the acquisition of the lease, a Lease Acquisition and Development Agreement) and a Standard Operating Agreement which provides for the allocation of costs, including specified amounts to defray the Company's nonspecifically identifiable costs based upon the depth of the well and other scheduled factors. 3. During 1995, the Company's Exploration Department supervised the drilling and completion of its wells; which included downhole completion as well as selecting the surface handling facilities to measure and separate out water and gas from oil, providing the connections to the gas pipelines and the storage tanks for oil and installing meters to measure production.
Marketing Production from the Company's royalty and working interests is marketed by the operator of the well, generally to a major oil company or gas utility.
In the twelve month period ending December 31, 1995, the following purchasers accounted for more than 10 percent of the Company's oil and gas revenues:
Chevron 49% Shell Oil 14%
Other purchasers of the Company's oil and gas production include Michigan Consolidated Gas, Total Petroleum, Delta Oil Company, Petrostar Energy and Peninsular Oil and Gas.
Substantially all gas sales are made under long term contracts with the above utilities. These contracts may relate either to the reserves from a specified well or wells or to those to be developed from specified acreage and generally obligate the utility to take or pay for specified annual quantities, typically in amounts sufficient to account for the bulk of the reserves within ten years or less. The contracts normally extend for a term substantially co-extensive with the life of the reserves and provide for periodic price adjustments, which usually involve annual or more frequent price increases on the basis of specified percentage or dollar increments and may also involve provision for increases or price limitations based on the prices paid to others for natural gas or alternative fuels or those permitted generally to be paid for natural gas pursuant to government price regulations. The Company has no reason to believe that any of the contracts for the sale of gas will be voided. Oil is sold under less structured arrangements and at posted prices more immediately responsive to market conditions.
Contracts, Accounting and Related Functions The Company handles the following procedures concerning the drilling of new wells: Contract negotiations, price determinations, government compliance, including, for example, NGPA-FERC gas well filings, maintenance of computerized records providing ownership and revenue distribution data on a well-by- well and owner-by-owner basis. The Company generates and distributes monthly reports containing information as to daily production and sales together with, in the case of working interest owners, operating statements detailing expenses.
Employees The Company began employing certain accounting and operations personnel in March, 1983. The Company presently has employees in the executive, geology and land, data processing, accounting and operations areas. The Company will also utilize third party contractors for needed services. None of the Company's employees are represented by a labor union or collective bargaining agent. Relations with the employees are good. There have been no work stoppages associated with labor disputes or grievances.
As of January 1, 1996, there are six employees of the Company.
Competition The Company competes with major oil companies, independent operators and others in acquiring drilling prospects, in contracting for oil and gas field services and equipment, in selling oil and gas production and in securing trained personnel.
The Company is not a significant factor in the oil and gas business even within the limited geographic area in which its operations are conducted.
ITEM 2.

ITEM 2. - PROPERTIES
Oil and Gas Reserves The Company has not filed estimates of its oil and gas reserves with any Federal Agency other than the Securities and Exchange Commission. The reserve information set forth in this section has been compiled from estimates made by the independent engineering firm of K&A Energy Consultants, Inc., Tulsa, Oklahoma in a report dated January 1, 1992 (and updated January 1, 1996 internally) on an unescalated basis for the Companies most productive 16 wells and from the independent engineering firm of Evan, Carey and Crozier, Bakersfield, California in a report dated July 24, 1989 and revised August 1, 1993 by Basim Ziara, Petroleum Engineering Consultants for the companies production purchase and operations in California. The remaining reserve figures are from a report dated January 1, 1988 and revised January 1, 1996 internally based on 1988 through 1995 production history changes, if any, and the acquisition and sale of production properties. The Company removed all reserve estimates from the Tulare Lakes Field in California and added reserves for the St. Dover & House #1-33A well in Otsego County, Michigan.
Reserve Category - Net to the Appraised Interest Interest Oil Gas Future Net Present Worth Cond. (Mcf) Cash Flow Discounted at (Bbls) 10 Percent _________________________________________________________________ Proved Developed Producing Totals n/a n/a n/a n/a
Oil and Gas Production The Company's net oil and gas production, constituting its share of production from its working and royalty interests for the years ended December 31, 1995, 1994 and 1993 are set forth in the table below: 1995 1994 1993 ____ ____ ____ Oil (Bbls) 11,920 16,634 22,736 Gas (Mcf) 63,342 65,034 65,839
- --All of the Interests and Reserves of the Company are located within Michigan, with the exception of three fields.
Prices and Costs The following tables set forth the average sales price per unit and average lifting cost with respect to the Company's production of oil and gas for the past three years.
Average sales Price per unit 1995 1994 1993 ____ ____ ____ Oil (Per Bbl) 16.73 14.40 16.76 Gas (Per Mcf) 1.97 2.37 2.78
The price per barrel of oil as of March 31, 1996, is $20.50 and the price per mcf of gas as of the same date ranges from $2.00 to $3.50 per mcf.
Average lifting cost (Oil & Gas Combined) 1995 1994 1993 ____ ____ ____ 12.24 9.06 9.44
Lifting costs include monthly operating charges and operating expenses but, do not include severance or windfall profit taxes.
Average lifting cost per sales dollar was $.82
Gross Net Exploratory Wells Net Development Wells _____ _____________________ _____________________ Year Wells Oil Gas Dry Oil Gas Dry ____ _____ ___ ___ ___ ___ ___ ___ 1991 9 .0400 ---- .0450 .00475 .0812 .0200 1992 10 .0400 ---- .3250 .08000 .0812 ---- 1993 5 ---- .0400 .0200 ---- ---- ---- 1994 10 ---- .0050 .0600 ---- ---- ---- 1995 1 .1500 ---- ---- ---- ---- ----
From inception through January 1, 1996, the total gross wells (a well in which a working interest is owned) in which the Company has an interest is 27 and the total net productive wells (the fractional ownership working interests in gross wells equal to one) is 1.49.
As of January 1, 1996, the total gross developed acres (acres spaced or assignable to productive wells) is 7,720.
All working interests and acreage is located within the United States of America.
The Company's total working interest reserves developed during 1995 are as follows: Total Reserves Wells Drilled Developed ______________________ ______________________ Total Successful Dry Disposal Well Oil (Bbls) Gas (Mcf) _____ _________ ___ _____________ __________ _________ 1 1 0 0 24,000 0
ITEM 3.

ITEM 3. - LEGAL PROCEEDINGS
On June 2, 1995, a lawsuit was filed in the Superior Court of the State of California for the County of Kings by Kings County Development Limited, a California Limited Partnership and J.G. Boswell Company, a California corporation as Plaintiffs. This lawsuit is due to a prior dispute between Chevron U.S.A., the previous owner of the field, and the royalty and land owners and was filed against numerous defendants including General Energy Resources and Technology Corporation and G.E.N.Y. Operations Inc., its subsidiary.
The cost of legal defense involving this lawsuit would have been greater than the Company could bear. In addition, General Energy does not have a working interest in the wells and was not a party to the contract with Chevron. The judge in California has left open the future option to consider a malicious prosecution action against the Plaintiffs with regard to the cause of action against General Energy.
Upon recommendation of legal counsel, on March 25, 1996, General Energy and G.E.N.Y. Operations filed petitions for protection under Chapter 11 of the Bankruptcy Code.
To date, all attempts to negotiate a settlement with the California group have been unsuccessful. We hope that a settlement can be reached in the context of these Chapter 11s and are diligently working toward that conclusion.
ITEM 4.

ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The registrant did not submit any matters for a vote of security holders during the fourth quarter of 1995 through the solicitation of proxies or otherwise.
PART II
ITEM 5.

ITEM 5. - MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED SECURITY HOLDERS MATTERS
As of March 1, 1996, there are 7,991,870 shares of the Company's Common Stock outstanding. The Company has registered the Common Stock under Section 15(d) of the Securities and Exchange Act of 1934. All warrants to purchase common shares expired on April 22, 1986 and there are no longer any warrants outstanding.
The stock is principally traded on the over-the-counter market. The high and low sales prices for the Company's Common Stock, for the following periods were:
Common Stock Common Stock 1995 Bid Asked 1994 Bid Asked ____ ____________ ____ ____________ December 31 1/16 1/4 December 31 1/16 1/4 September 30 1/16 1/4 September 30 1/16 1/4 June 30 1/16 1/4 June 30 1/16 1/4 March 31 1/16 1/4 March 31 1/16 1/4
The number of holders of record of the Common Stock as of March 1, 1996 totaled approximately 1,000. No dividends, either cash or stock, have been declared as of December 31, 1995, and there is no present intention on the part of the Company to declare dividends in the foreseeable future.
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity/Capital Resources Net cash from operating activities for the Company as of the three most recent year-ends is as follows:
1995 1994 1993 ____ ____ ____ Cash Flows 333,180 (89,695) (88,643)
The Company has generated cash flow from operations, bank borrowings and the funds derived from its initial public offering in 1981, which yielded $3.7 million. Private sales from stock and the exercise of options have provided additional working capital.
In June 1989, one of the Company's major trade creditors, Mosbacher Energy Company (MEC), filed an operator's lien against various properties in which the Company owns a working interest and for which the Company owed MEC operating expenses. The liens resulted in the curtailment of revenue from these properties. A repayment plan was negotiated and on June 1, 1990, the Company signed a $292,814 promissory note with MEC for the amount owed MEC by General Energy Corporation for well operations as of May 7, 1990. The note is secured by the Company's interest in eleven producing properties operated by MEC and bears interest at 7 1/4 percent per annum. The terms of the agreement call for a monthly payment to Mosbacher Energy Company of the lesser of $20,000 or one months production of the secured properties.
In August of 1991, the Company borrowed $350,000 from Huntington Banks of Michigan. The note was secured by the personal guarantees of H. Terry Snowday and Edgar R. Puthuff, directors of the Company. Interest was payable monthly at one percent over the bank prime rate.
Proceeds from this note were loaned to American Barter Petroleum, Inc. to be used in a production property purchase in California. Interest is due at one percent over prime and principal is paid back out of production according to a predetermined schedule. In exchange for this loan, the Company received a 25 percent interest in net revenue.
Both notes were paid in full in October, 1992.
In 1991, the Company recorded approximately $875,500 of long-term debt on the Tulare Lakes Field. This represents a 25% share of the outstanding debt on the field. This is a non recourse debt. General Energy is not a party to the purchase contract between Chevron, Penteco and American Barter. The Company's 25% interest was to be paid from Penteco Corporation's working interest percentage, net of expenses. As of December 31, 1995, the total revenue from the field continued to be less than the total expenses with no expectation of improvement within the next twelve months. Management determined the asset and liability to be unrealistically presented on the financial statements and the outstanding debt balance of $908,410 which included accrued interest and the asset balance of $717,288, net of accumulated DD&A, were written off.
The Company has been able to satisfy its long-term debt commitments. The balance of accounts payable however, has increased to $692,031 at December 31, 1995 compared to $434,937 at December 31, 1994. A large portion of the accounts payable are for services provided by companies that have been very tolerant regarding timing of payment for these services.
The monthly operating cost for direct obligations for rent of the Company's office space will be $775.00. Management is aware that it has limited capital resources available with which to continue a lease acquisition/exploration program. Evaluation of various investment alternatives will continue to be made on a case-by- case and/or well-by-well basis, and commitments will be made as funds permit.
Management believes cash flow from the sale of its currently producing oil and gas properties as well as the two projects being completed in 1996, should be sufficient to pay current operating liabilities and to amortize the current portion of the long-term debt.
Management has developed contingency plans to obtain additional capital by the issuance of debt or sale of equities to the extent that these actions become necessary in the future.
The price that the Company received for oil during 1995 ranged from $15.26 to $18.75. The posted price for crude oil is at $20.50 per barrel as of March 31, 1996. There is uncertainty as to the price of oil over the next twelve months.
While the sale of gas remains subject to NGPA regulated pricing policies, it is recognized that certain concessions must be made as to contractual pricing to insure that the Company's gas reserves remain a competitive alternative fuel.
Results of Operations _____________________ Revenues Oil and gas sales Working interest $ 277,027 $ 333,805 $ 412,239 Royalty interest 57,007 71,268 91,108 Gain (loss) on sale of turnkey working interests and oil properties 29,456 31,970 22,808 Repromotional income 5,739 1,743 14,321 Consulting income 59,198 0 0 Administrative overhead 25,700 21,000 10,500 Gain on write-off 299,164 0 0 Other income 3 832 5,574 _________ _________ _________ Total Revenues 753,294 460,618 556,550 Net Earnings (loss) $ 191,588 $ (146,250) $ (467,877) ========= ========= =========
The Company's total revenues increased $292,676 from $460,618 at December 31, 1994 to $753,294 at December 31, 1995 and the Company's operating loss decreased $337,838 from $(146,250) at December 31, 1994 to $191,588 at December 31, 1995.
A major factor contributing to the Company's year end earnings was a gain of $299,164 resulting from the write-off of a producing oil and gas property and its liability.
The cost incurred in oil and gas property acquisitions, exploration and development activities for the year ended December 31, 1995 totaled $29,117 and capitalized costs related to oil and gas producing activities as of December 31, 1995 totaled $338,551 as compared to $42,111 and $1,087,239 respectively in 1994.
ITEM 8. - FINANCIAL STATEMENTS
Consolidated Balance Sheets. . . . . . . . . . . . . . 15 Consolidated Statements of Operations. . . . . . . . . . 17 Consolidated Statements of Cash Flows. . . . . . . . . . 19 Consolidated Statements of Stockholders' Equity. . . . . 21 Notes to Consolidated Financial Statements . . . . . . . 22 Supplemental Schedules . . . . . . . . . . . . . . . . . 31
General Energy Resources and Technology Corporation and Subsidiary Consolidated Balance Sheets, December 31, 1995 and 1994
ASSETS 1995 1994 ____ ____ CURRENT ASSETS Cash $ 136,108 $ 55,923 Accounts Receivable Trade 592,224 381,522 Less Allowance for Doubtful Accounts (8,698) (8,698) Prepaid Expenses 437 313 _________ _________ Total Current Assets 720,071 429,060
PROPERTY AND EQUIPMENT, AT COST Proved Oil and Gas Properties, Successful Efforts Method of Accounting 2,891,901 3,724,331 Unproved Leasehold and Minerals 85,106 85,106 Drilling Contracts in Progress 12,213 11,253 _________ _________ 2,989,220 3,820,690 Less Accumulated Depreciation, Depletion, and Amortization 2,650,669 2,733,451 _________ _________ Net Property and Equipment 338,551 1,087,239
OTHER ASSETS Investments (net of unrealized loss of $288,950) 1,050 1,050 _________ _________ $1,059,672 $1,517,349 ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES Current Portion Long-Term Debt $ 3,000 $ 54,749 Account Payable Trade 692,031 434,937 Notes Payable 111,000 111,000 Joint Interest Prepayment 135,371 108,583 Salaries Payable 54,923 40,000 Stock Options Payable 25,603 25,603 _________ _________ Total Current Liabilities 1,021,928 774,872
LONG-TERM DEBT 55,429 951,750
STOCKHOLDERS' EQUITY Common Stock ($.10 Par Value, 18,000,000 Shares Authorized, 7,991,870 Shares Issued and Outstanding) 799,187 799,187 Additional Paid-in Capital 7,435,012 7,435,012 Deficit (8,251,884) (8,443,472) _________ _________ Total Stockholders' Equity (17,685) (209,273) ========= ========= Total Liabilities and Stockholders' Equity $1,059,672 $1,517,349 ========= =========
See Accompanying Notes to Financial Statements
General Energy Resources and Technology Corporation and Subsidiary Consolidated Statements of Operations For the Years Ending December 31, 1995, 1994 and 1993
1995 1994 1993 ____ ____ ____ REVENUES Oil and Gas Sales Working Interest $ 277,027 $ 333,805 $ 412,239 Royalty Interest 57,007 71,268 91,108 Gain(Loss) on Turnkey Working Interests and Oil Properties 29,456 31,970 22,808 Promotional Income 5,739 1,743 14,321 Consulting Income 59,198 0 0 Administrative Overhead 25,700 21,000 10,500 Gain on write-off 299,164 0 0 Other Income 3 832 5,574 _________ _________ _________ Total Revenues 753,294 460,618 556,550
COSTS AND EXPENSES Lease and Operating Expenses 275,189 248,987 318,290 Taxes Other Than Income 10,634 11,782 17,432 Dry Holes and Abandonments 929 24,312 326,372 Depreciation, Depletion And Amortization 41,175 45,515 60,853 General and Administrative 229,568 191,612 189,948 Interest Expense, Net of Capitalized Interest 4,211 84,660 111,532 _________ _________ _________ Total Costs and Expenses 561,706 606,868 1,024,427 _________ _________ _________ NET EARNINGS (LOSS) BEFORE TAXES 191,588 (146,250) (467,877)
CURRENT INCOME TAXES 0 0 0 _________ _________ _________ NET EARNINGS (LOSS) $ 191,588 $ (146,250) $ (467,877) ========= ========= ========= Per Share of Common Stock, Weighted Average Method Income Before Extraordinary Items $ .02 $ (.018) $ (.059) ========= ========= ========= Net Income $ .02 $ (.018) $ (.059) ========= ========= ========= Weighted Average Number of Shares Outstanding 7,991,870 7,991,870 7,925,203 ========= ========= =========
See Accompanying Notes to Financial Statements
General Energy Resources and Technology Corporation and Subsidiary Consolidated Statements of Cash Flows For the Years Ending December 31, 1995, 1994 and 1993
1995 1994 1993 ____ ____ ____ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) $ 191,588 $ (146,250) $ (467,877) Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities Depreciation, Depletion and Amortization 41,175 45,515 60,853 Abandonments, Expired and Surrendered Leases 3,555 36,175 364,905 (Gain)Loss on Sale of Turnkey Working Interest and Oil and Gas Properties 8,883 0 (11,918) Permanent Decline in Valuation of Investment 0 0 0 (Increase)Decrease in Current Assets: Trade Accounts Receivable (210,702) (228,875) (109,873) Prepaid Expenses (124) 125 1,324 Increase(Decrease) in Current Liabilities: Trade Accounts Payable 257,094 163,615 73,943 Salaries Payable 14,923 40,000 0 Joint Interest Prepayments 26,788 0 0 _________ _________ _________ NET CASH FROM OPERATING ACTIVITIES 333,180 (89,695) (88,643)
CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of Property and Equipment (22,907) (15,714) (31,506) Proceeds from Sale of Property and Equipment 694 0 10,000 Write-off of Oil & Gas Property 717,288 0 0 _________ _________ _________ NET CASH FROM INVESTING ACTIVITIES 695,075 (15,714) (21,506)
CASH FLOWS FROM FINANCING ACTIVITIES Acquisition of Short-Term Debt 0 100,000 11,000
Acquisition of Long- Term Debt 0 78,091 181,293 Reduction of Long-Term Debt (39,660) (57,495) (92,749) Write-off of Long-Term debt (908,410) 0 0 Proceeds from Issuance of Stock 0 0 20,000 _________ _________ _________ NET CASH FROM FINANCING ACTIVITIES (948,070) 120,596 119,544 _________ _________ _________ NET INCREASE(DECREASE) IN CASH 80,185 15,187 9,395
CASH AT BEGINNING OF PERIOD 55,923 40,736 31,341 _________ _________ _________ CASH AT END OF PERIOD $ 136,108 $ 55,923 $ 40,736 ========= ========= =========
See Accompanying Notes to Financial Statements
Stock Option Plan There is no current Stock Option Plan in effect.
Amounts owed to officers and directors for excess payments under a previously existing Stock Option Plan amount to $25,603 and are included in current liabilities.
In 1986, one of the former officers returned his option stock to the Company. These 15,000 shares were held in treasury by the Company and recorded at par value. The Company reissued all treasury stock in 1992.
Stock Option Agreement The Company entered into a Stock Option Agreement with Penteco Corporation (Penteco). Penteco had an option to purchase 1,000,000 shares at a price of $.31 per share and an option to purchase another 1,000,000 shares at a price of $.50 per share at various times. That option was renewed by the Board to extend through September, 1993. Penteco exercised part of their option for the 1,000,000 shares at $.31. Effective January 1993, Penteco's Stock Option Agreement was terminated as a result of the termination of the Company's Management Agreement with Penteco Corporation. The Company had an outstanding Stock Option Agreement with an employee to purchase 100,000 shares of General Energy stock for $.25 per share. This Agreement expired on January 5, 1993.
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information with respect to the shares of common stock of the Company beneficially owned by each beneficial owner of more than 5% of such shares, each director and officer of the Company, and all directors and officers as a group as of December 31, 1995.
Number of Shares Percent of Common Name Of Common Stock Stock Outstanding ____ _______________ _________________ H. Terry Snowday, Jr. 366,596 4.58% Robert M. Andrews 548,765 6.86% 12683 S. Marina Village Dr. Traverse City, MI 49684 Richard E. Calvert 449,935 5.62% P.O. Box 368 Perrinton, MI 48871-0368 Leslie L. Guernsey 6,700 (4) Armond Hansen 502,118 6.28% P.O. Box 6007 Mesa, AZ 85216-6007 Rosalie A. Newman 10,309 (4) Edgar R. Puthuff 941,998 (1) 11.78% John G. Ross 75,649 (2) (4) Charles W. Taylor 1,102,146 (3) 13.79% Edward A. Ward II 65,149 (4)
all directors and officers as a group (7 in the group) 2,568,547 32.13%
(1) Includes 10,000 shares owned by Edgar Puthuff & William Miller Trust of the Miller Puthuff Associates, Inc. Employees Pension Profit Sharing Plan, 17,649 shares owned by Edgar R. Puthuff Trust Miller Puthuff Associates Employees Pension Plan, 575,015 shares owned by Miller Puthuff Associates Pension Plan Profit Sharing Plan Profit Sharing Plan Trust and 100,000 shares owned by Edgar Puthuff Tr of the Miller Puthuff Associates Employees Pension Profit Sharing Plan.
(2) Includes 35,649 shares held by Patricia E. Ross, his wife.
(3) Includes 1,102,146 shares held by Penteco Corporation.
(4) Less than 1%
The above list includes officers and directors who have a beneficial ownership in the securities of the Company. All officers and directors are voting FOR on all proposals. It is not known how the other 5% shareholders intend to vote their proxies.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no family relationships between the officers and/or directors of the Company other than Edward A. Ward II is a brother-in-law of H. Terry Snowday.
Director Charles W. Taylor is President, Chairman of the Board and Chief Executive Officer of Penteco Corporation and Chairman of the Board of Lincoln Gas and Oil Marketing Corporation.
In 1987, the Company entered into a Management Agreement with Penteco Corporation to analyze the Company's financial position and provide management services to the Company. Mr. Charles Taylor, a director of the Company, owns 25% of the outstanding shares of Penteco and is a director and officer of that Company. Director's Snowday, Puthuff and Ward are minority investors in Penteco Corporation. Mr. Taylor abstained from voting for the Management Agreement considering his position with Penteco. Effective January 1993, the Management Agreement with Penteco Corporation was terminated and those responsible for management duties became salaried employees or advisors to the Company.
In July of 1990, Penteco Corporation agreed to accept 1,891,182 shares of General Energy Resources and Technology Corporation stock as payment for management fees for the period November, 1987 to May, 1990 totaling $94,559.10. The Company had a two year buy-back option and in September 1992, the Company repurchased the 1,891,182 shares of General Energy Corporation stock at $.06 per share. The Company then issued 886,040 shares at $.20 to replace the shares purchased and as payment for additional management fees accrued through August, 1992.
As of December 31, 1995, the Company has a liability to Penteco of $13,262 for management fees and out-of-pocket costs.
In 1991, the Company loaned $350,000 to American Barter. American Barter agreed to repay this loan, with interest at the Company's borrowing rate and to assign a 25% working interest in the Tulare Lakes Field. The Tulare Lakes Field was purchased from Chevron by Penteco and American Barter in 1991. The agreement between Chevron and Penteco and American Barter states that the note owed to Chevron will be repaid from production from the Tulare Lakes Field. If production does not cover debt payments, General Energy is not liable to Chevron or other third parties. The Company booked 25% of the purchase price as proved oil and gas properties, approximately $875,900. The Company also recorded 25% of the liabilities for Penteco and American Barter's purchase of the field along with 25% of American Barter's $350,000 debt to General Energy, borrowed for costs of revitalizing the field. During 1992, and 1993, additional debt has been recorded for Society Bank loans used to pay off the original $350,000 and for operating expenses and accrued interest. In 1993, the Company sold a 1% interest to a company shareholder for $10,000. The Company's 25% interest was to be paid from Penteco Corporation's working interest percentage, net of expenses. As of December 31, 1995, the total revenue from the field continued to be less than the total expenses with no expectation of improvement within the next twelve months. Management determined the asset and liability to be unrealistically presented on the financial statements and the outstanding debt balance of $908,410 which included accrued interest and the asset balance of $717,288, net of accumulated DD&A, were written off.
During 1991, the Company organized the sale of 306,410 shares of privately held General Energy stock. The Company did not purchase the stock, only brought together the buyers and sellers. The Company earned approximately $18,000 from this sale. These funds were applied to pay other obligations and settlements due the seller of the shares and costs related to the transaction.
During 1992, the Company repurchased a 5% interest in the Fons- Jacob well from a Company director in exchange for 504,015 shares of restricted stock issued at $.20 per share.
During 1993, the Company sold 200,000 shares of restricted stock to Company shareholders at $.10 per share. One of these shareholders also loaned $11,000 to the Company through its subsidiary, which is expected to be repaid in 1996.
The Company sold several turnkey working interests to major shareholders and directors during 1995. Accounts receivable from these related parties totaled $50,094 at December 31, 1995 while related party accounts payable amounted to $7,476. No interest has been accrued on any of the above amounts.
Pursuant to the requirements of Section 13, or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 12th day of April, 1996.
GENERAL ENERGY RESOURCES AND TECHNOLOGY CORPORATION
By: H.TERRY SNOWDAY, JR. _____________________________ H. Terry Snowday, Jr. President
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following person(s) on behalf of the registrant and in the capacities and on the date(s) indicated.
Signature Title Date _________ _____ ____
H. TERRY SNOWDAY, JR. President, Chairman of the 05/07/96 _____________________ Board, Chief Executive H. Terry Snowday, Jr. Officer and Director
ROSALIE A. NEWMAN Chief Financial Officer and 05/07/96 _____________________ Treasurer Rosalie A. Newman
EDGAR R. PUTHUFF Director 05/07/96 _____________________ Edgar R. Puthuff
JOHN G. ROSS Director 05/07/96 _____________________ John G. Ross
CHARLES W. TAYLOR Director 05/07/96 _____________________ Charles W. Taylor
EDWARD A. WARD Director 05/07/96 _____________________ Edward A. Ward