_
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 June 30, 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 August 19, 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 June 30, 2003
PART I: FINANCIAL INFORMATION..................................................3
ITEM 1: FINANCIAL STATEMENTS...............................................3
CONSOLIDATED BALANCE SHEETS..............................................3
CONSOLIDATED STATEMENTS OF OPERATIONS....................................5
CONSOLIDATED STATEMENTS OF CASH FLOW.....................................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................................12
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2003 COMPARED TO THREE
AND SIX MONTH PERIODS ENDED JUNE 30, 2002.............................. 12
FORWARD LOOKING STATEMENTS..............................................14
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........15
ITEM 4: CONTROLS AND PROCEDURES............................................15
PART II: OTHER INFORMATION....................................................16
EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) OR RULE 15D-14(A)..........16
EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO RULE 13A-14(B), 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002.............................................................16
SIGNATURES.................................................................16
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Greenbriar Corporation
Consolidated Balance Sheets
(Amounts in thousands)
June 30, December 31,
Assets 2003 2002
(Unaudited)
------------ ------------
Current assets
Cash and cash equivalents $ 141 $ 661
Accounts receivable-trade 35 22
Note receivable 2,322 1,238
Other current assets 172 323
------------ ------------
Total current assets 2,670 2,244
Notes receivable, from sale of properties 6,914 7,997
Less deferred gains (6,127) (6,127)
------------ ------------
787 1,870
Deferred income tax benefit 1,161 1,161
Property and equipment, at cost
Land and improvements 777 678
Buildings and improvements 4,841 6,850
Equipment and furnishings 1,325 1,387
------------ ------------
6,943 8,915
Less accumulated depreciation 2,172 2,282
------------ ------------
4,771 6,633
Deposits 324 311
Other assets 374 405
------------ ------------
$ 10,087 $ 12,624
============ ============
3
Greenbriar Corporation
Consolidated Balance Sheets - Continued
(Amounts in thousands)
June 30, December 31,
Liabilities and stockholders' equity 2003 2002
(Unaudited)
------------ ------------
Current liabilities
Current maturities of long-term debt $ 2,331 $ 113
Accounts payable - trade 301 405
Accrued expenses 375 367
Other current liabilities 426 668
------------ ------------
Total current liabilities 3,433 1,553
Long-term debt 4,487 8,479
Investment in Affiliate 13 46
Deferred Gain 740 740
Other long term liabilities 502 455
------------ ------------
Total liabilities 9,175 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 (54,084) (53,645)
------------ ------------
912 1,351
$ 10,087 $ 12,624
============ ============
4
Greenbriar Corporation
Consolidated Statements Of Operations
(Amounts in thousands, except per share data)
For The Three Month For The Six Month
Period Ended Period Ended
June 30, June 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Revenue
Assisted living operations $ 1,118 $ 1,042 $ 2,189 $ 2,369
Operating expenses
Assisted living operations 607 476 1,239 1,114
Lease expense 386 391 799 768
Depreciation and amortization 93 103 173 224
Corporate general and
administrative 149 438 290 869
---------- ---------- ---------- ----------
1,235 1,408 2,501 2,975
---------- ---------- ---------- ----------
Operating loss (117) (366) (312) (606)
Other income (expense)
Interest income 60 66 114 227
Interest expense (190) (198) (386) (427)
Equity in net income (loss) of
affiliated partnership 15 (292) 33 (413)
Other 55 (19) 112 (19)
---------- ---------- ---------- ----------
(60) (443) (127) (632)
---------- ---------- ---------- ----------
Loss from continuing operations (177) (809) (439) (1,238)
Discontinued operations
Loss from operations (228) (257)
---------- ---------- ---------- ----------
Net loss (177) (1,037) (439) (1,495)
---------- ---------- ---------- ----------
Net loss per common share -
basic and diluted $ (.51) $ (2.49) $ (1.28) $ (3.59)
Weighted average of common and
equivalent shares outstanding 344 417 344 417
5
Greenbriar Corporation
Consolidated Statements Of Cash Flow
(Amounts in thousands)
For the six month
Period Ended June 30,
2003 2002
--------- --------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss $ (439) $ (1,495)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 173 704
Loss on sale of assets 19
(Gain) loss on partnership (33) 413
Changes in operating assets and liabilities
Accounts receivable (13) 248
Other current and non current assets 153 4
Accounts payable and other liabilities (291) (395)
--------- ---------
Net cash used in operating activities (450) (502)
--------- ---------
Cash flows used in investing activities
Proceeds from sale of property 4,236
Purchase of property and equipment (50) (208)
--------- ---------
Net cash provided by (used in) investing
activities (50) 4,028
Cash flows from financing activities
Payments on debt (20) (4,993)
Borrowings 179
--------- ---------
Net cash used in financing
activities (20) (4,814)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND (520) (1,288)
CASH EQUIVALENTS
Cash and cash equivalents at beginning of period 661 2,344
--------- ---------
Cash and cash equivalents at end of period $ 141 $ 1,056
========= =========
6
Notes To Consolidated Financial Statements
For the Unaudited Three and Six Months Ended June 30, 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 and six month periods ended June 30, 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
exempt 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 upon
collection of the notes held by CREI. The notes are due September 30, 2004.
8
Following are unaudited, condensed financial statements of CREI (in thousands):
Balance Sheet
June 30, 2003
Current assets $ 109
Other assets 152
Notes receivable 994
------------
$ 1,255
Current liabilities $ 70
Other liabilities 157
Deferred gain 994
------------
1,221
Partners' equity 34
------------
$ 1,255
Statement of Operations
Six months ended June 30, 2003
Interest Income $ 57
Expenses 6
------------
Net Income $ 51
------------
9
Note D: Long-Term Obligations
Long-term debt is comprised of the following (in thousands):
June 30, December 31,
2003 2002
------------ ------------
Notes payable 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 $ 2,123 $ 3,956
Notes payable 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 1,752 1,753
Notes payable to Sylvia M. Gilley, bearing interest at
10% and maturing on July 1, 2004 2,255 2,255
Notes payable 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% 661 598
Other 27 30
------------ ------------
6,818 8,592
Less: current maturities 2,331 113
============ ============
$ 4,487 $ 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,
"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.
10
During 2002, the Company disposed of six communities. Revenues for the six
communities for the three and six months ended June 30, 2002 was $1,507,000 and
$3,105,000 respectively.
Pursuant to SFAS No. 144, the results of operations for the six communities has
been reclassified to Discontinued Operations for the three and six months ended
June 30, 2002.
Note F - Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB 25) in its primary financial
statements and has provided supplemental disclosures required by State of
Financial Accounting Standards No. 123 (SFAS 123) "Accounting for Stock-Based
Compensation" and by Statement of Financial Accounting Standards No. 148
"Accounting for Stock-Based Compensation - Transition and Disclosure an
Amendment of SFAS No. 123."
SFAS 123 requires disclosure of pro forma net earnings (loss) and pro forma net
earnings (loss) per share as if the fair value method had been applied in
measuring compensation cost for stock based awards. There was no stock based
compensation expense for any period presented.
Note G - Contingencies
Benetic Financial vs. Wedgwood et al
This action is against a subsidiary of the Company as well as other corporate
and individual defendants who are unrelated to The Company. In 1993, Wedgwood
Retirement Inns entered into a financing arrangement with a third party lender.
The plaintiff alleged that he had a verbal brokerage agreement with Wedgwood and
was entitled to a fee. The Company acquired Wedgwood in 1996.
In a jury trial the plaintiff was awarded $150,000 on one count of his
complaint. However, the jury found for the defendants on all other counts. In
his final ruling the judge awarded the defendants legal fees that were in excess
of the judgment. The plaintiff appealed and on April 30,2003 the California
Court of Appeals let the $150,000 stand but reversed the judges award of legal
fees. At this point the defendants are obligated for the judgment plus interest
since 1993. The judgment is against all the defendants as a group.
The defendants have filed an appeal to the California Supreme Court.
11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
Overview
As of June 30, 2003, the Company owns one community and leases two communities
in three states with a capacity of 257 residents. 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 and six month periods ended June 30, 2003 compared to three and six month
periods ended June 30, 2002.
Revenues and Operating Expenses from Assisted Living Operations
Revenues were $1,118,000 and $2,189,000 for the three and six months ended June
30, 2003 as compared to $1,042,000 and $2,369,000 for the three and six months
ended June 30, 2002. Community operating expenses, which consist of assisted
living community expenses, lease expense and depreciation and amortization, were
$1,086,000 and $2,211,000 for the three and six months ended June 30, 2003 as
compared to $970,000 and $2,106,000 for the three and six months ended June 30,
2002.
The Company owned a community which it leased to a third party during the three
and six month period ended June 30, 2002. The lease expired in November 2002 and
the Company operated the Community during the three and six months ended June 30
2003. The revenues included for this community in 2003 were $170,000 and
$284,000 respectively. The operating expenses were $155,000 and $316,000.
Included in revenue for the three and six months ended June 30, 2002 are $
78,000 and 333,000 respectively which pertain to one Community that was
contributed to an unconsolidated partnership in May 2002. Operating expenses for
the equivalent periods were $50,000 and $215,000. The Company sold its
partnership interest in November 2002.
During the three and six months ended June 30, 2002 the Company managed three
communities for a third party. The management fees recorded in the three and six
months of 2002 were $114,000 and $224,000, respectively. The Company did not
manage properties for third parties during 2003.
12
Corporate General and Administrative Expenses
General and administrative expenses were $149,000 and $290,000 for the three and
six months ended June 30, 2003 compared to $438,000 and $869,000 for the three
and six months ended June 30, 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 fewer communities, expenses
such as travel, communication costs and general operating costs were reduced.
Interest Income
Interest income decreased to $60,000 and $114,000 for the three and six months
ended June 30, 2003 as compared to $66,000 and $227,000 for the three and six
months ended June 30, 2002. Interest for the first quarter of 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
2003.
Interest Expense
Interest expense decreased to $190,000 and $386,000 for the three and six months
ended June 30, 2003 as compared to $198,000 and $427,000 for the three and six
months ended June 30, 2002. In December the Company borrowed $1,700,000 at 12%
interest which represents an additional $51,000 and $102,000 for the three and
six months ended June 30, 2003 when compared to 2002.
In May 2002 the Company contributed one community to an unconsolidated
partnership. Interest expense for that community was $18,000 and $73,000 for the
three months and six months ended June 30, 2002. In November 2002, the Company
transferred its partnership interest in Muskogee Real Estate Investors, LP to
Sylvia M. Gilley, reducing 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 and $56,000 for the
three and six months ended June 30, 2003 as compared to 2002.
Equity in Net Income (Loss) of Affiliated Partnership
During the three and six months ended June 30, 2002, CREI operated two
properties. The Company's share of the net losses was ($292,000) and ($439,000)
respectively. 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 and six month
periods ended June 30, 2003 the Company's portion of the CREI's earnings were
$15,000 and $33,000 respectively.
13
Other Income (Expense)
Other Income (expense) for the three months and six months ended June 30, 2003
was $55,000 and $112,000 respectively. The majority of that amount was proceeds
from the settlement of a legal action brought by the Company.
Liquidity and Capital Resources
At June, 2003, the Company had current assets of $2,670,000 and current
liabilities of $3,433,000. Included in current liabilities is a $2,255,000 note
to Sylvia M. Gilley. Under the terms of the note the obligation will only be due
if the Company has sufficient cash to pay the note.
Operating activities used $450,000 of cash in 2003 and $502,000 in 2002 The
decrease in cash used in 2003 as compared to 2002 was the net result of the
reduced net loss offset by a lower level of non-cash charges in 2003.
Investing Activities used $50,000 of cash in 2003 and provided $4,028,000 of
cash in 2002. The cash used in 2003 was for purchases of equipment at the
various Communities owned by the Company. The cash provided in 2002 includes
$4,236,000 which is the proceeds from the sale of properties as well as
expenditures of $208,000 for the purchase of equipment.
Financing activities used $20,000 in cash in 2003 and used $4,814,000 in cash in
2002. The cash used in 2003 was for principal payments on debt. The cash used in
2002 was for the payment of debt. The principal source of the cash in 2002 was
from the sale of properties.
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 The Company'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. The Company 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 The Company'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 The Company's Annual Reports
on Form 10-K and Quarterly Reports on Form 10-Q.
14
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.
15
PART II: OTHER INFORMATION
ITEMS 1-6: ARE NOT APPLICABLE.
- -------------------------------
EXHIBITS
- --------
Exhibit 31.1 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Rule 13a-14(b), 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by
undersigned, thereunto duly authorized.
Greenbriar Corporation
Date: August 19, 2003 By: /s/ Gene S. Bertcher
-----------------------
Chief Executive Officer
Chief Financial Officer
16