_
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 2003
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)
Registrant's telephone number, including area code: (972) 407-8400
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES [X] NO [ ]
At May 13, 2003, the issuer had outstanding approximately 343,900 shares of par
value $.01 Common Stock.
GREENBRIAR CORPORATION
Index to Quarterly Report on Form 10-Q
Period ended March 31, 2003
PART I: FINANCIAL INFORMATION..................................................3
ITEM 1: FINANCIAL STATEMENTS................................................3
CONSOLIDATED BALANCE SHEETS..............................................3
CONSOLIDATED STATEMENTS OF CASH FLOW.....................................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................11
THREE-MONTH PERIOD ENDED MARCH 31, 2003OMPARED TO THREE-MONTH
PERIOD ENDED MARCH 31, 2002...........................................11
FORWARD LOOKING STATEMENTS..............................................13
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RATE.........14
ITEM 4: CONTROLS AND PROCEDURES............................................14
PART II: OTHER INFORMATION....................................................15
SIGNATURES.................................................................15
EXHIBIT 99.2..................................................................17
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002...............................................................17
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Greenbriar Corporation
Consolidated Balance Sheets
(Amounts in thousands)
March 31, December 31,
Assets 2003 2002
(Unaudited)
------------ ------------
Current Assets
Cash and cash equivalents $ 166 $ 661
Accounts receivable-trade 35 22
Notes receivable 1,238 1,238
Other current assets 220 323
------------ ------------
Total Current Assets 1,659 2,244
Notes receivable, from sale of properties 7,997 7,997
Less deferred gains (6,127) (6,127)
------------ ------------
1,870 1,870
Deferred income tax benefit 1,161 1,161
Property and equipment, at cost
Land and improvements 678 678
Buildings and improvements 6,850 6,850
Equipment and furnishings 1,432 1,387
------------ ------------
8,960 8,915
Less accumulated depreciation 2,344 (2,282)
------------ ------------
6,616 6,633
Deposits 327 311
Other Assets 391 405
------------ ------------
$ 12,024 $ 12,624
============ ============
3
Greenbriar Corporation
Consolidated Balance Sheets - Continued
(Amounts in thousands)
March 31, December 31,
Liabilities and Stockholders' Equity 2003 2002
(Unaudited)
------------ ------------
Current Liabilities
Current maturities of long-term debt $ 85 $ 113
Accounts payable - trade 177 405
Accrued expenses 346 367
Other current liabilities 541 668
------------ ------------
Total Current Liabilities 1,149 1,553
Long-term debt 8,521 8,479
Investment in Affiliate 28 46
Deferred Gain 740 740
Other long term liabilities 497 455
------------ ------------
Total Liabilities 10,935 11,273
Stockholders' Equity
Preferred stock 1 1
Common stock $.01 par value; authorized,
100,000 shares; 359 shares issued and outstanding 72 72
Additional paid-in capital 54,923 54,923
Accumulated deficit (53,907) (53,645)
------------ ------------
1,089 1,351
$ 12,024 $ 12,624
============ ============
4
Greenbriar Corporation
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
For The Three Month
Period Ended
March 31,
2003 2002
(Unaudited)
Revenue
Assisted living operations $ 1,070 $ 1,327
Operating expenses
Assisted living operations 632 638
Lease expense 413 377
Depreciation and amortization 79 121
Corporate, general and
administrative 142 431
------- -------
1,266 1,567
------- -------
Operating income (loss) (196) (240)
Other income (expense)
Interest income 54 161
Interest expense (196) (229)
Equity in net income (loss) of
affiliated partnership 18 (121)
Other 58 --
------- -------
(66) (189)
------- -------
Loss from continuing operations (262) (429)
Discontinued operations
Loss from operations
(29)
------- -------
------- -------
NET (LOSS) $ (262) $ (458)
======= =======
Net loss per common share -
basic and diluted $ (.76) $ (1.28)
Weighted average number
of common and equivalent
shares outstanding 344 359
5
Greenbriar Corporation
Consolidated Statements Of Cash Flow
(Amounts in thousands)
For the three month
Period Ended March 31,
2003 2002
--------- ---------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss $ (262) $ (458)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 79 331
Loss (Gain) from affiliate (18) 121
Changes in operating assets and liabilities
Accounts receivable (13) 121
Other current and non current assets 84 38
Accounts payable and other liabilities (334) (465)
--------- ---------
Net cash used in operating activities (464) (312)
--------- ---------
Cash flows provided by (used in) investing activities
Purchase of property and equipment (45) (48)
--------- ---------
Net cash provided by (used in) investing
Activities (45) (48)
Cash flows from financing activities
Payments on debt (14) --
Borrowings -- 179
--------- ---------
Net cash provided by (used in) financing
activities (14) 179
--------- ---------
Net increase (decrease) in cash and
cash equivalents (495) (181)
Cash and cash equivalents at beginning of period 661 1,246
--------- ---------
Cash and cash equivalents at end of period $ 166 $ 1,065
========= =========
6
Notes To Consolidated Financial Statements
For the Unaudited Three Months Ended March 31, 2003 and 2002
Note A: Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Greenbriar Corporation and its majority-owned subsidiaries
(collectively, "the Company"). All significant intercompany transactions and
accounts have been eliminated.
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and, accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles.
These financial statements have not been examined by independent certified
public accountants, but in the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
consolidated results of operations, consolidated financial position and
consolidated cash flows at the dates and for the periods indicated, have been
included.
Operating results for the three-month period ended March 31, 2003 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2003. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2002.
Note B: Notes Receivable and Deferred Gain From Sale Of Property
As a result of the sale of three communities in 2001 the Company holds
tax-free-notes in the amount of $6,437,000 bearing interest at 9.5%. The notes
mature on April 1, 2032, March 20, 2037 and August 1, 2031 respectively.
The repayment of the notes is limited to the cash flow of the respective
communities either from operations, refinance or sale. The Company has deferred
gains in the amount of $6,127,000. The deferred gains and interest income will
be recognized as cash is received.
Note C: 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 sole member is W.
Michael Gilley, the son of the former CEO of the company. Sylvia Gilley, W.
Michael Gilley's mother, 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, the
Partnership acquired a retirement community for approximately $9,100,000 and in
January 2002, it acquired an assisted living community for approximately
$2,800,000.
7
The Company issued a $1,600,000 note to the seller 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 balance of
the purchase price was funded by CREI's borrowings from a third party.
In September 2002 CREI sold its two properties for cash and notes and paid off
its third party debt. As part of the proceeds, CREI received a note for
$1,600,000 due September 30, 2004 which was transferred to the Company in
satisfaction of its $1,600,000 note receivable from CREI. CREI also assigned the
Company a $400,000 participation in another note due September 30, 2004 in
payment of other CREI debt to the Company.
The Company transferred the $1,600,000 note it received 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 of $1,322,000. The Company has deferred recognition of
its $740,000 share of the gain because of the aforementioned guaranty. CREI has
deferred a gain of $994,000 that will be recognized on the installment method.
The Company will realize its $557,000 (56%) portion of the $994,000 as it
receives proceeds.
8
Following are unaudited, condensed financial statements of CREI (in thousands):
Balance Sheet
March 31, 2003
Current assets $ 96
Other assets 152
Notes receivable 994
-----------
$ 1,242
Current liabilities $ 70
Other liabilities 157
Deferred gain 994
-----------
1,221
Partners' equity 21
-----------
$ 1,242
Statement of Operations
Three months ended March 31, 2003
Revenue $ 33
Expenses 1
----------
Net Income $ 32
----------
9
Note D: Long-Term Obligations
Long-term debt is comprised of the following (in thousands):
March 31, December 31,
2003 2002
------------ ------------
Notespayable to financial institutions maturing
through 2015; fixed and variable interest rates
ranging from 5.25% to 10.50%; collateralized by
property, fixtures, equipment and the
assignment of rents $ 3,937 $ 3,956
Notespayable to individuals and companies
maturing through 2023; variable and fixed
interest rates ranging from 7% to 8.75%
collateralized by real property, personal
property, fixtures, equipment and the
assignment of rents 1,753 1,753
Notes payable to Sylvia M. Gilley, bearing interest
at 10% and maturing on July 1, 2004 2,255 2,255
Notespayable to current and former executive
officers, non interest bearing at 8.5% and
maturing on December 31, 2004, net of discount
of $227 and $260 respectively, representing
interest imputed at 8.5% 631 598
Other 30 30
------------ ------------
8,606 8,592
Less: current maturities 85 113
------------ ------------
$ 8,521 $ 8,479
As discussed in Note C the company is guarantor of debt in the amount of
$1,600,000.
Note E - 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,
10
"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
has either been disposed of or classified as held for sale. The Company adopted
SFAS No. 144 as of January 1, 2002.
During 2002, the Company disposed of six communities. Revenues for the six
communities for the three months ended March 31, 2002 was $1,888,000.
Pursuant to SFAS No. 144, the results of operations for the six communities has
been reclassified to Discontinued Operations for the three months ended March
31, 2002.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Overview
As of March 31, 2003, 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's 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
Three-month period ended March 31, 2003 compared to three-month period ended
March 31, 2002.
Revenues and Operating Expenses from Assisted Living Operations
Revenues were $1,070,000 for the three months ended March 31, 2003 as compared
to $1327,000 for the three months ended March 31, 2002. Community operating
expenses, which consist of assisted living community expenses, lease expense and
depreciation and amortization, were $1,124,000 for the three months ended March
31, 2003 as compared to $1,136,000 for the three months ended March 31, 2002.
11
Included in revenue and operating expenses for 2002 are $240,000 and $165,000
respectively which pertain to one community that was contributed to an
unconsolidated partnership in May 2002. The partnership was subsequently sold.
The Company owned a community which it leased to a third party during the
three-month period ended March 31, 2002. The lease expired in November 2002 and
the Company operated the Community during the three months ended March 31 2003.
The revenues and operating expenses included for this community in 2003 were
$115,000 and $161, 000 respectively
During the three months ended March 31, 2002 the Company managed three
communities for a third party. The management fees recorded in 2002 were
$110,000. The Company did not manage properties for third parties during 2003.
Corporate General and Administrative Expenses
General and administrative expenses were $142,000 for the three months ended
March 31, 2003 compared to $431,000 for the three months ended March 31, 2002.
During the later part of 2001 and 2002 the Company sold, leased or disposed
twenty-six communities. The decrease in the corporate general and administrative
expenses is primarily a result of a decrease in salaries and related payroll
expenses. Due to the reduction in the number of communities operated by the
Company, the number of employees on the corporate staff was reduced. In
addition, due to having less communities, expenses such as travel, communication
costs and general operating costs were reduced.
Interest Income
Interest income decreased to $54,000 for the three months ended March 31, 2003
as compared to $161,000 for the three months ended March 31, 2002. Interest for
2002 includes $117,000 received from the notes receivable from the sale of
properties. As discussed in Note B, the interest from these notes is recorded
when a payment is received. The Company did not receive an interest payment for
the notes during the three months ended March 31, 2003.
12
Interest Expense
Interest expense decreased to $196,000 for the three months ended March 31, 2003
as compared to $229,000 for the three months ended March 31, 2002. In December
the Company borrowed $1,700,000 at 12% interest which represents an additional
$51,000 in 2003 when compared to 2002.
In May 2002 the Company contributed one community to an unconsolidated
partnership. Interest expense for that community was $55,000 during the three
months ended March 31, 2002. In November 2002, the Company transferred the
partnership to Sylvia Gilley, wife of the former CEO of the Company, and reduced
the debt due to Mrs. Gilley by $1,120,000 and extending the due date of the note
by one year to June 30, 2004. This reduction in debt reduced interest expense by
an additional $28,000 in 2003 as compared to 2002.
Equity in Net Income (Loss) of Affiliated Partnership
During the quarter ended March 31, 2002 CREI operated two properties. The
Company's share of the operating losses was ($121,000). CREI sold its properties
in September 2002 and, as part of the proceeds, received notes. The collection
of the notes and interest thereon is the only remaining operation of the
partnership. For the three months ended March 31, 2003 the Company's portion of
the CREI's earnings was $18,000.
Other Income (Expense)
Other Income (expense) for the three months ended March 31, 2003 was $58,000.
The majority of that amount was proceeds from the settlement of a legal action
brought by the Company.
Liquidity and Capital Resources
At March 31, 2003, the Company had current assets of $1,659,000 and current
liabilities of $1,149,000.
Operating activities used $464,000 of cash in 2003 and $312,000 in 2002. The
decrease in cash used in 2003 as compared to 2002 was the net result of
decreased cash for certain working capital accounts.
Investing Activities used $45,000 of cash in 2003 and $48,000 of cash in 2002.
The use of cash was for purchases of equipment at the various Communities owned
by the Company
Financing activities used $14,000 in cash in 2003 and provided $179,000 in cash
in 2002. In 2002 the Company had increased net borrowings of $179,000 while in
2003 the Company had no additions in debt.
It is anticipated that the Company will acquire additional properties through
investments in third party entities which, for the most part, will be
13
partnerships. The Company may or may not be the controlling party with respect
to these investments. It is anticipated that the senior officers will bring
potential acquisitions and financing to the Company. The Company has no
obligation to participate.
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.
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 of subject
area. These and other risks and uncertainties are detailed in the Company's
reports filed with the Securities and Exchange Commission (SEC), including
Greenbriar Corporation's Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
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.
ITEM 4: CONTROLS AND PROCEDURES
- -------------------------------
The Company maintains a set of disclosure controls and procedures and internal
controls designed to ensure that information required to be disclosed in the
Company's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time period specified in the
Securities and Exchange Commission rules and forms. Our principal executive and
financial officer has evaluated our disclosure control procedures within 90 days
prior to the filing of this Quarterly report on Form 10-Q and have determined
that such disclosure controls and procedures are effective.
There were no significant changes in the Company's internal controls or, to its
knowledge, in other factors that could significantly affect its disclosure
controls and procedures subsequent to the Evaluation Date.
14
PART II: OTHER INFORMATION
ITEMS 1-6: ARE NOT APPLICABLE.
- --------------------------------
SIGNATURES
- ----------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by
undersigned, thereunto duly authorized.
Greenbriar Corporation
Date: May 20, 2002 By: /s/ Gene S. Bertcher
-----------------------
Chief Executive Officer
Chief Financial Officer
15
GREENBRIAR CORPORATION
MARCH 31, 2003
CERTIFICATIONS
I, Gene S. Bertcher, Chief Executive Officer and Chief Financial Officer of
Greenbriar Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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. I am 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. 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. 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
---------------------------------
Chief Executive Officer
Chief Financial Officer
May 20, 2002
16